MARKET HIGHLIGHTS: Q1 2019
January brought a welcome rebound in the markets resulting from renewed investor confidence. This change of direction buoyed the major benchmark indexes, pushing them to levels not seen in 30 years and proving once again that market returns are unpredictable, and trends in either direction can quickly take a new direction.
In Q1, each of the major indexes posted notable gains, led by the small-cap Russell 2000, followed by the Nasdaq, S&P 500, Global Dow, and the Dow. In the context of the tumultuous decline just a quarter ago, these returns feel almost extraordinary. Indeed, the past quarter marked the best first quarter of the year since 2009:
What caused the about-face? One factor was a more positive outlook on the trade negotiations between the United States and China—a situation that has been a drag on manufacturing, technology, and other critical market sectors for many months. At the same time, key economic statistics indicated continued slow, steady growth. Housing is strong, despite expectations that the new tax law would hurt unit sales and prices. While job growth was nearly flat, inflation remained low, and the Fed has signaled that interest rates will likely remain unchanged in the foreseeable future. And luckily, though the government shutdown in January was concerning, the markets barely reacted to the political debacle.
What is our outlook for the balance of 2019? Factors that could impact the market moving forward include Brexit (what a nightmare for the UK) and the future of the trade negotiations between the US and China. Historically, an inversion of the yield curve predicts a recession, yet slow growth is still growth. Employment is still strong, and consumers remain confident.
Being cautious when markets rise and optimistic after a decline seems counterintuitive. It’s not easy, but we believe that cautious optimism is always the best outlook.