Capital Markets Review: March 2019

The 2019 rally marched on, with global stocks nearly erasing losses incurred in Q4. However, gains in March accumulated at a slower pace than either January or February and were more concentrated. Bonds continued to impress, as investors drove yields lower in the wake of the Fed confirming further rate hikes are expected to be on ice for the remainder of the year.

Market Volatility

The rapid Q4 correction and 2019 recovery whipsawed many investors who reacted emotionally. After an extraordinary lack of volatility in 2017, recent choppiness is a good reminder that markets don’t go in a straight line and strong up and down moves should both be expected and planned for. Those with a strategic plan were able to benefit from tax management and rebalancing and we believe remain by far most likely to emerge from full market cycles successfully.

US-China Trade Talks

Trade talks with China advanced and there are reports that officials were reviewing details and agreeing on translations. To drive further gains in stocks, an agreement would likely need to be viewed as somewhat comprehensive and permanent. With widespread optimism for a resolution growing over the last couple of months, most of the upside may already be baked into stocks and risk from this issue may now be skewed to the downside.

Q1 Earnings

S&P 500 earnings grew by 13% in Q4, helping support the robust start to the year. However, with 2017 tax cuts now factored into year-over-year comparisons and margins edging down from record highs, Q1 earnings are expected to decline modestly when reported. While this is well known and should already be reflected in current prices, there is still the potential for investor unease if earnings do start shrinking.