Q1 Market Summary

Weekly Update – Q1 Market Summary

Equity markets saw their best quarter since the 2008-2009 Great Recession.  Here are the returns of several notable asset classes to start 2019:

These returns come on the heels a significant pullback in the fourth quarter of 2018 that erased the year’s gains, and brought almost every major stock index into negative territory for the year.

The doom and gloom predictions of a severe bear market and recession just three months back have turned into euphoria and optimism, once again reiterating how unpredictable the markets are over short periods of time.

So what changed?  The Fed announced a more accommodative policy and walked back their intended interest rates hikes for 2019.  Corporate earnings met and/or exceeded expectations, and buyers returned to more attractive valuations following the 4th quarter downturn.

Some items that could drive the market for the remainder of 2019:

Inflation – It remains low and below the Fed’s target.  In fact, traders are pricing in years of low inflation going forward as the 10 year treasury is now trading in the 2.4% range.  Any significant uptick and we could see a repricing in the equity and bond markets.

Valuations – Can corporate earnings keep up with rising stock valuations?  Any significant dips in consumer and/or business spending could hurt corporate earnings.

Yield Curve – It has officially inverted, meaning you can get a higher interest rate on short-term treasury bonds vs. longer-term treasury bonds.  Historically, an inverted yield curve has been one precursor to a recession, though other factors such as low inflation and mortgage refinances could be to blame for the declining yield on longer term bonds.

As the last 6 months has proved, predicting short-term market swings are near impossible.  What we can do is remain disciplined and view future pullbacks as opportunities to buy in at more attractive valuations, as was done with client portfolios throughout December 2018.

If you have any questions on the markets or anything else, please do not hesitate to contact me at the office.

Best,

Clint