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Q1 Recap

DOMESTIC ECONOMIC HEALTH

Late last year, the Federal Reserve wasforecasting two interest rate hikes for 2019 and maintaining a fairly hawkishoutlook. On March 20, the central bank veered away from all that. It cut its2019 growth forecast for the economy by 0.2% to 2.1%, indicated it would notraise interest rates this year, and projectedjust one quarter-point hike through 2021. At a press conference immediatelyafter the release of the March policy statement, Fed Chairman Jerome Powellshared his view that the “growth of economic activity has slowed,” but he addedthat Fed policymakers did not foresee a recession developing.2

The financial markets reacted swiftly.Demand for longer-term Treasury notes rose. By March 22, the yield on the10-year Treasury had fallen dramatically, to the point where the yield on the2-year Treasury exceeded it. (Bond yields fall when bond prices rise.)Economists refer to this as an inverted yield curve. Some economists see aninverted yield curve as a recession signal, while others disagree. The suddenflight to longer-term Treasuries did seem to reflect a lessening of riskappetite among institutional investors. Just six days after the Fed made itspivot, the CMEGroup’s FedWatch Tool, which tracks market expectations aboutinterest rate changes, gave the Fed a 71.7% chance of making an interest ratecut by the end of the year.3,4

Some of the incoming data during thequarter seemed to correspond with the Fed’s revised assessment of the economy,but some did not. (Some was actually delayed as an effect of the federalgovernment shutdown that carried into late January.)

Inflation pressure eased. In October,the Consumer Price Index showed a 2.5% annualized advance. By February,inflation was running at just 1.5%.5

Job creation surged, then fell off. Therewere 311,000 net new jobs in January, but just 20,000 in February. From Januaryto February, though, the unemployment rate declined from 4.0% to 3.8%, and thebroader U-6 rate, encompassing the underemployed, dropped from 8.1% to 7.3%.(The federal government shutdown may have affected some of the above numbers.)6

The quarter also ended with the Bureauof Economic Analysis downgrading fourth-quarter gross domestic product (GDP).The prior estimate was 2.6%; the revised estimate was 2.2%.7

One important consumer confidence gaugerose and fell during the quarter: the Conference Board’s index declined sharplyto 124.1 in March, after hitting a 3-month peak of 131.4 in February. TheUniversity of Michigan’s consumer sentiment index performed better: it startedthe quarter with a drop of 7.1 points in January, but by late March, it was at98.4, a tenth of a point above where it was in December.8,9

The Institute for Supply Management’smonthly purchasing manager index, following manufacturing activity, was nowherenear 60 (a level it reached last summer), but remained well above 50 (the markdelineating sector expansion from industry contraction). ISM’s manufacturing PMIwas at 56.6 in January, 54.2 in February, and 55.3 in March.10

 

GLOBAL ECONOMIC HEALTH

Financialmarkets worldwide breathed a collective sigh of relief as the trade disputebetween the U.S. and China eased. Negotiations between the two nationscontinued during the quarter, but no deal emerged. While some trade analystssee an agreement being reached in the second quarter, there are doubts thatsuch an accord will resolve the issue at the center of the tariff fight – theconcern that Chinese firms are using their technologies to steal U.S.intellectual property. In March, President Trump said that he would preferleaving 25% tariffs on $50 billion of Chinese products in place, even if a newtrade deal was forged.11

The quarter ended without a Brexit oreven an accepted Brexit path – with the United Kingdom facing a potentiallyunpleasant outcome. The revised Brexit deal, which Prime Minister Theresa May broughtto Parliament, was rejected for a third time in late March, raising thepossibility of the U.K. leaving the European Union on April 12 without any kindof defined trade agreement. The European Central Banksurprised financial markets in early March with a decision to revive some ofthe economic stimulus measures it had recently ended, and it also indicatedthat would leave interest rates unchanged until at least 2020. The latestforecast from the Organization for Economic Cooperation and Development (OECD) projectsonly 1% growth for the eurozone this year and less than that for the economiesof Germany, Japan, and the United Kingdom.12,13

WORLD MARKETS

The S&P 500 was just one of manyequity benchmarks advancing double digits in the first quarter. In fact, nearlyevery foreign stock index posted a quarterly gain of some kind. China’sShanghai Composite surged 26.77%; Italy’s FTSE MIB, 16.17%; Hong Kong’s HangSeng, 14.41%; France’s CAC 40, 13.10%; all outperformed the S&P for Q1.Other notable gains: Canada’s TSX Composite, 12.42%; Euro Stoxx 50, 11.66%;Germany’s DAX, 9.16%; Brazil’s Bovespa, 8.56%; the United Kingdom’s FTSE 100,8.19%; India’s BSE Sensex, 8.11%; Japan’s Nikkei 225, 7.56%; South Korea’sKOSPI, 6.19%. MCSI’s World index rose 11.88% in the quarter; MSCI’s EmergingMarkets index, 9.56%.14,15

 

COMMODITIES MARKETS

Oil outgained all other majorcommodities during the quarter. The value of West Texas Intermediate crude rose29.98% on the New York Mercantile Exchange (NYMEX), taking the per-barrel priceto $60.18 at the March 29 close. Other major Q1 advances: unleaded gasoline,25.52%; palladium, 14.98%; copper, 9.29%; platinum, 6.59%; lumber, 6.07%;cotton, 5.61%. The significant retreats: natural gas, 4.21%; cocoa, 6.44%;corn, 6.98%; coffee, 9.22%; wheat, 11.76%. Gold gained but 0.29% for thequarter, while silver lost 2.65%. On the NYMEX Commodity Exchange, gold wasworth $1,290.80 per ounce at the close on March 29; silver, $15.10 per ounce.The U.S. Dollar Index closed out Q1 1.27% higher at 97.20.16,17

REAL ESTATE

Is a buyer’s market returning? As thequarter ended, some real estate industry journalists and analysts wondered ifthat was the case. Existing home sales surged 11.8% in February, according tothe National Association of Realtors. That was the largest monthly gain seensince December 2015. While residential resales were still down 1.8%,year-over-year, this latest NAR report was certainly encouraging. NAR chiefeconomist Lawrence Yun cited “lower mortgage rates, more inventory, risingincome, and higher consumer confidence” as contributing factors in theincrease. Additionally, the Census Bureau said that the pace of new home buyingimproved 4.9% during February; economists surveyed by Reuters had forecast a1.3% advance.18,19

As Yun noted, cheaper home loans factoredin to all this. The decline in longer-term Treasury yields influenced mortgagerates. By the last week of March, a 30-year, fixed-rate mortgage was carryingan average interest rate of just 4.06%, according to the calculations ofmortgage buyer Freddie Mac. Compare that with 4.95% as recently as November. (The15-year, fixed-rate mortgage carried an average interest rate of just 3.57% asMarch ended.)20

In February, the median sale price ofan existing home was $249,500, representing a year-over-year increase of 3.6%.The median new home purchase price was $315,300, and that was down 3.6% from ayear earlier.18,19

 

T I P  O F   T H E   Q U A R T E R


Retirees aiming to increasetheir income over time should not overlook the potential of dividend-payingstocks.

 

LOOKING BACK, LOOKING FORWARD

As the table below shows, the majorU.S. equity benchmarks recorded great gains in the quarter. The closingsettlements on the last trading day of Q1: Dow Jones Industrial Average,25,928.68; S&P 500, 2,834.40; Nasdaq Composite, 7,729.32. The S&PSmallcap 600 ended the quarter at 939.30, advancing 11.17%.21

 

    MARKET INDEX      

Q1 CHANGE

     

Q4 CHANGE

     

2018

       

DJIA

     

+11.15

     

-11.83

     

-5.63

       

NASDAQ

     

+16.49

     

-17.54

     

-3.88

       

S&P  500

     

+13.07

     

-13.97

     

-6.24

                 

BOND YIELD

     

3/29 RATE

     

12/31 RATE

     

1 YR AGO

       

10-YEAR TREASURY

     

2.41

     

2.69

     

2.74

 

 

Sources:barchart.com, treasury.gov - 3/29/1821,22,23

Indices are unmanaged, do not incur fees orexpenses, and cannot be invested into directly. These returns do not includedividends. 10-year Treasury yield = projected return on investment, expressedas a percentage, on the U.S. government’s 10-year bond.

 

Just as the bulls seemed beaten down,they came running right back. After diving nearly 14% in the last three monthsof 2018, the S&P 500 rebounded more than 13% in the opening quarter of2019. While consumer spending is still strong, many analysts still see slightlyless economic growth this year (between 2%-2.5%). Stock market analytics firmFactSet is now projecting 4% profit growth for S&P 500 firms in 2019; when2018 ended, the projection was near 10%. Economies in Europe and China appearto be less robust, and that could put a drag on the revenue of S&P 500companies, 40% of which comes from outside the U.S. An abrupt April Brexitcould also be a negative for global equity markets. The financial marketsshowed great resilience in Q1, forcing some financial firms to reconsider theirfull-year outlook.1

 

Q U O T E  O F   T H E   Q U A R T E R

 

“The secret of joy in work is contained in one word – excellence. To know how to do something well is to enjoy it.”

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This material was prepared by MarketingPro, Inc., and doesnot necessarily represent the views of the presenting party, nor theiraffiliates. The information herein has been derived from sources believed to beaccurate. Please note - investing involves risk, and past performance is noguarantee of future results. Investments will fluctuate and when redeemed maybe worth more or less than when originally invested. This information shouldnot be construed as investment, tax or legal advice and may not be relied onfor the purpose of avoiding any Federal tax penalty. This is neither asolicitation nor recommendation to purchase or sell any investment or insuranceproduct or service, and should not be relied upon as such. All market indicesdiscussed are unmanaged and are not illustrative of any particular investment.Indices do not incur management fees, costs, or expenses. Investors cannotinvest directly in indices. All economic and performance data is historical andnot indicative of future results. The Dow Jones Industrial Average is aprice-weighted index of 30 actively traded blue-chip stocks. The NASDAQComposite Index is a market-weighted index of all over-the-counter commonstocks traded on the National Association of Securities Dealers AutomatedQuotation System. The Standard & Poor's 500 (S&P 500) is a market-capweighted index composed of the common stocks of 500 leading companies inleading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operatestwo securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSEArca (formerly known as the Archipelago Exchange, or ArcaEx®, and the PacificExchange). NYSE Group is a leading provider of securities listing, trading andmarket data products and services. The New York Mercantile Exchange, Inc. (NYMEX)is the world's largest physical commodity futures exchange and the preeminenttrading forum for energy and precious metals, with trading conducted through twodivisions – the NYMEX Division, home to the energy, platinum, and palladiummarkets, and the COMEX Division, on which all other metals trade. The SSEComposite Index is an index of all stocks (A shares and B shares) that aretraded at the Shanghai Stock Exchange. The FTSE MIB is the benchmark stockmarket index for the Borsa Italiana, the Italian national stock exchange. TheHang Seng Index is a free float-adjusted market capitalization-weighted stockmarket index that is the main indicator of the overall market performance inHong Kong. The CAC-40 Index is a narrow-based, modified capitalization-weightedindex of 40 companies listed on the Paris Bourse. The S&P/TSX CompositeIndex is an index of the stock (equity) prices of the largest companies on theToronto Stock Exchange (TSX) as measured by market capitalization. The EUROSTOXX 50 is a stock index of Eurozone stocks designed by STOXX, an indexprovider owned by Deutsche Börse Group. The DAX 30 is a Blue Chip stock marketindex consisting of the 30 major German companies trading on the FrankfurtStock Exchange. The Bovespa Index, best known as Ibovespa, is the benchmarkindex of about 60 stocks that are traded on the B3 (Bovespa: BOlsa de Valoresdo Estado de São PAulo). The FTSE 100 Index is a share index of the 100 mosthighly capitalized companies listed on the London Stock Exchange. BSE Sensex orBombay Stock Exchange Sensitivity Index is a value-weighted index composed of30 stocks that started January 1, 1986. Nikkei 225 (Ticker: ^N225) is a stockmarket index for the Tokyo Stock Exchange (TSE). The Nikkei average is the mostwatched index of Asian stocks. The Korea Composite Stock Price Index or KOSPIis the major stock market index of South Korea, representing all common stockstraded on the Korea Exchange. The MSCI Emerging Markets Index is afloat-adjusted market capitalization index consisting of indices in more than25 emerging economies. The MSCI World Index is a free-float weighted equityindex that includes developed world markets and does not include emergingmarkets. The CBOE Volatility Index® is a key measure of marketexpectations of near-term volatility conveyed by S&P 500 stock index optionprices. The S&P SmallCap 600® measures the small-cap segment of the U.S.equity market. Additional risks are associated with international investing,such as currency fluctuations, political and economic instability anddifferences in accounting standards. This material represents an assessment ofthe market environment at a specific point in time and is not intended to be aforecast of future events, or a guarantee of future results. MarketingPro, Inc.is not affiliated with any person or firm that may be providing thisinformation to you. The publisher is not engaged in rendering legal, accountingor other professional services. If assistance is needed, the reader is advisedto engage the services of a competent professional.

CITATIONS:

1 - tinyurl.com/y23en223/[3/29/19]

2 -cbsnews.com/news/fed-rate-hikes-none-in-2019-federal-reserve-projects-no-rate-hikes-slower-growth-this-year/[3/20/19]

3 - bloomberg.com/news/articles/2019-03-22/u-s-treasury-yield-curve-inverts-for-first-time-since-2007[3/22/19]

4 -investors.com/market-trend/stock-market-today/dow-jones-futures-fed-rate-cut-odds-inverted-yield-curve/[3/26/19]

5 -ycharts.com/indicators/us_inflation_rate [4/1/19]

6 - investing.com/economic-calendar/[3/31/19]

7 - marketwatch.com/tools/calendars/economic [3/29/19]

8 -investing.com/economic-calendar/cb-consumer-confidence-48 [3/31/19]

9 -tradingeconomics.com/united-states/consumer-confidence [3/31/19]

10 - instituteforsupplymanagement.org/ISMReport/MfgROB.cfm[4/1/19]

11 - pbs.org/newshour/economy/new-round-of-u-s-china-trade-talks-set-to-begin-in-beijing[3/28/19]

12 - cnbc.com/2019/03/29/brexit-general-election-speculation-grows-after-may-loses-vote.html[3/29/19]

13 - nytimes.com/2019/03/07/business/ecb-european-economy-stimulus.html[3/7/19]

14 - investing.com/indices/major-indices[3/31/19]

15 -msci.com/end-of-day-data-search [3/29/19]

16 -barchart.com/futures/performance-leaders?viewName=chart&timeFrame=3m [3/31/19]

17 - money.cnn.com/data/commodities/[3/29/19]

18 -nar.realtor/newsroom/existing-home-sales-surge-11-8-percent-in-february[3/22/19]

19 - cnbc.com/2019/03/29/new-home-sales-february.html [3/29/19]

20 - tinyurl.com/y27puujx [3/29/19]

21 -barchart.com/stocks/indices?viewName=performance [3/29/19]

22 -barchart.com/stocks/indices?viewName=performance [1/1/19]

23 -treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldAll[3/29/19]

 

The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value

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