THE ECONOMY: As of March 2019
Per the Atlanta Federal Reserve estimate, expectations for 1st quarter GDP growth have steadily improved, up to 2.1%. The S&P 500 has moved higher along with the incoming data, up 13.65% year-to-date, and is just a few percentage points away from the all-time high reached last September. Continued positive news on the U.S.-China trade front has provided support for semiconductor stocks, and the technology sector has led the way in the 1st quarter, up nearly 20%. The yield curve did briefly invert, with 10-year U.S. Treasury rates falling below the yield on the 3-month Treasury, which historically presaged economic weakness. The inversion only lasted a few days and has since resolved, but will be something to keep an eye on going forward.
THE ECONOMY: As of February 2019
Strong momentum carried into February as the stock markets rallied further off their late December lows. The S&P 500 is off to its best two-month start in nearly 30 years, up 11.48%. Small cap stocks have also stood out, gaining 17.03% through the end of last month. A more cautious approach to monetary policy out of the Federal Reserve and an apparent easing of trade tensions between the U.S. and China have boosted investors’ confidence. With the government shutdown over, economic data releases should return to a normal schedule, giving us a better read on first quarter growth.
THE ECONOMY: As of January 2019
Rebounding off of deeply oversold conditions in late December, the S&P 500 posted its best January in 30 years, rising just over 8%. Generally positive earnings reports combined with a shift in the Federal Reserve’s outlook toward a less restrictive monetary policy spurred the gains. Also, back-to-back solid employment reports have given investors the confidence that the economic expansion remains on track. Emerging market equities were beneficiaries of Federal Reserve actions as well, up 8.77% in January.
THE ECONOMY: As of December 2018
It was a tough way to close out the year for stocks, as fears of a global slowdown heading into 2019 and the Federal Reserve tightening monetary policy too quickly weighed on markets. The S&P 500 was down 9.03%, marking it one of the worst Decembers on record. International and emerging markets held up better, falling 4.85% and 2.66%, respectively. Interest rates fell as investors looked for safety, with the 10-Year U.S. Treasury yield ending the year at 2.69%, down from above 3% a month prior.
Stock markets rallied late November on news of an ostensible trade truce between the U.S. and China after the G20 meeting in Argentina, as well as Fed Chair Jerome Powell softening his tone regarding future interest rate increases. The S&P 500 was up 2.04%, bringing its year-to-date gain to just above 5%. Emerging market equities, which are often sensitive to U.S. monetary policy, surged 4.12% during the month. The Fed is still expected to raise rates at its next meeting in December, but odds for further action in 2019 have been declining.
Volatility picked back up in a big way in October, with most major stock markets experiencing between 5 – 10% declines. There wasn’t any one reason investors could point to, but a combination of rising interest rates, potentially escalating trade tensions with China, and the upcoming midterm elections were enough to cause a wave of selling. Yet the underlying economy and corporate fundamentals, especially in the U.S., appear to be on solid footing. Third quarter GDP came in at a 3.5% annualized rate, and yearly S&P 500 earnings growth is tracking at nearly 25%.
QUARTERLY MARKET COMMENTARY : Third Quarter 2018
Last quarter, we noted that a Google Trends search for the term “trade war” hit a value of 100 in early July, which denotes peak popularity according to the firm’s model, reflective of what was arguably investors’ top concern over the first half of 2018. But how did stocks respond as fears of an impending trade war reached their peak? By rallying nearly 8% over the ensuing three months, hitting a new all-time high in the process. So, despite a seemingly daily deluge of headlines warning of imminent economic peril, investors who stayed the course were well rewarded. Markets have a funny way of doing that. And while the final resolution of various trade negotiations around the world are uncertain, the global economy remains on solid footing and corporate earnings continue to impress.
You may have missed, it given all the headlines surrounding various political distractions across the globe, but the third quarter turned out quite nicely for stock markets. The S&P 500 gained an impressive 7.71% and reached a new all-time high. International equities also posted positive performance, with the MSCI EAFE up 1.35%. Fixed income markets were relatively stable, as investors largely anticipated the Federal Reserve’s late September decision to raise its key interest rate for a third time this year.
Sell in May and go away? Not so in 2018, as U.S. stock markets have rallied strongly over the past 3 months. The S&P 500 gained 7.10% over that time period, recouping its losses from early in the year and even hitting a new all-time high. International and emerging markets have not fared as well, due to ongoing trade disputes and currency crises in Turkey and Argentina. Both the MSCI EAFE and MSCI Emerging Markets are roughly flat since May. Thanks to ongoing economic strength in the U.S., the Federal Reserve is all but certain to raise interest rates at its upcoming September meeting.