Market Reviews 2019

Market Reviews 2019 2019-04-08T13:31:32+00:00

US stocks staged a startling recovery in January, recouping nearly all the ground they had
given up in December. The reversal was particularly notable because many of the issues that had
plagued investors during the final quarter of 2018 continued to trouble them in January 2019.
The government shutdown, which had begun in December, dragged on through most of the
month, ending with a three-week cease-fire, and finally a continuing resolution to fund
government operations. No definitive news emerged concerning trade with China, although
negotiators gave vague indications of progress. Federal Reserve officials did strike a more dovish
tone during January, but even that change could have been a response to weakening economic
conditions. The initial sharpness of the rally may have been due, in part, to the turn of the
calendar itself — technical factors like tax-loss harvesting and hedge fund redemptions would
have required selling in December, but not in January. The advance continued at a more
moderate pace for the remainder of the quarter, although smaller stocks fell back in value during
March. The S&P 500 index returned +13.65% for the quarter. Despite declines in March, the
Mid-cap 400 index returned +11.61%, and the Small-cap 600 index +13.64%, for the full
period. [Index returns: Standard and Poors]

The rally also extended to overseas stocks, in spite of signs of slowing in a number of
economies around the world and uncertainty over the path of the UK’s exit from the European
Union and the political fate of UK Prime Minister Theresa May. The MSCI EAFE international
equity index returned +10.59% in local currencies. The US dollar was mixed against other
currencies. It advanced to 110.68 yen from 109.70 at the end of December, and it strengthened
to $1.1228 against the euro, compared to $1.1456 on December 31. It weakened, however, to
$1.3032 against the pound Sterling, compared to $1.2763. EAFE returned +9.98% in US dollars
for the quarter. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

Interest rates fell sharply, particularly in March, as the Fed continued to signal its
accommodative stance. The two-year Treasury yield ended the quarter at 2.27%, down from
2.48% at the end of December. The ten-year yield also fell, ending March at 2.41%, from 2.69%
three months earlier. The Bloomberg Barclays US Aggregate Bond Index returned +2.94% for
the quarter. [Index return: Bloomberg; Bond yields: US Treasury]

The positive market momentum that began in January continued through March, at least with respect to the largest US stocks. On the positive side, negotiators conducting trade talks with China signaled some degree of progress, although their statements were short on specifics. The Federal Reserve also reinforced their indications of a shift toward a more accommodative monetary policy stance, although the White House complained that they have not been accommodative enough. Other problems persist, however. Global economic growth appears to be slowing, and the UK Government appears unable to forge any consensus in Parliament regarding the terms of that country’s exit from the European Union. Through it all large US stocks performed well. The S&P 500 index returned +1.94% for the month. The market’s advance was quite narrow, however: The Mid-cap 400 index lost –0.57%, and the Small-cap 600 lost –3.33%. [Index returns: Standard and Poors]

Despite global economic uncertainty, international stocks advanced. The MSCI EAFE international equity index returned +1.34% in local currencies. With soft economic performance and uncertainty in Europe, the US dollar advanced against European currencies. The dollar ended March at $1.1228 to the euro and $1.3032 to the pound Sterling, compared to levels of $1.1379 and $1.3274, respectively, a month earlier. The dollar slipped to 110.68 yen, from 111.38 at the end of February. With the currency movement, EAFE returned +0.63% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

In keeping with the Fed’s accommodative policy, interest rates fell sharply during March. The two-year US Treasury note yielded 2.27% at the end of the month, down from 2.52% a month earlier. The ten-year yield ended March at 2.41%, down from 2.73% at the end of February. Accordingly, bonds rallied sharply — the Bloomberg Barclays US Aggregate Bond index returned +1.92% for the month. [Index returns: Bloomberg; bond yields: US Treasury]

The remarkable rebound that began in the US stock market during January continued, although at a more moderate pace, in February. The upward momentum persisted in spite of continued uncertainty regarding US trade policy, arms control negotiations with North Korea, and the consequences of the UK’s movement toward leaving the European Union. Other cautionary signs include indications of a general slowing in global economic growth, most notably in Germany. Perhaps helping the market, though, were a series of comments by Federal Reserve officials, including Fed Chair Jerome Powell, suggesting that the Fed may be on the verge of adopting a more accommodative monetary policy. The S&P 500 index returned +3.21% for the month. Smaller stocks performed better still. The Mid-cap 400 index returned +4.24%, and the Small-cap 600 index returned +4.35%. [Index returns: Standard and Poors]

Global stocks also performed well in February. The MSCI EAFE international equity index returned +3.47% in local currencies. The US dollar strengthened to 111.38 yen from 108.84 at the end of January, and to $1.1379 against the euro from $1.1454 a month earlier. The dollar eased a bit against the pound Sterling, to $1.3274 at the end of February, compared to $1.3135 at the end of January. The currency movement worked against US investors, and EAFE returned +2.55% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

In spite of the Fed’s rather dovish signals, interest rates drifted a bit higher during February. The two-year US Treasury note yielded 2.52% at the end of February, up from 2.45% a month earlier. The ten-year yield also rose – to 2.73%, from 2.63% at the end of January. Market-wide, the rise in rates offset the coupon income from bonds, and the Bloomberg Barclays US Aggregate Bond index returned -0.06% for the month. [Index returns: Bloomberg; US Treasury yields: US Treasury]

US stocks staged a startling recovery in January, recouping nearly all the ground they had given up in December. The reversal was particularly notable because many of the issues that had plagued investors during the final quarter of 2018 continued to trouble them in January 2019. The government shutdown, which had begun in December, dragged on through most of the month, and the compromise that ended it merely amounted to a three-week cease-fire. No definitive news emerged concerning trade with China. Federal Reserve officials did strike a more dovish tone during January, but even that change could have been a response to weakening economic conditions. The sharpness of the rally may have been due, in part, to the turn of the calendar itself — technical factors like tax-loss harvesting and hedge fund redemptions would have required selling in December, but not in January. In any event, the S&P 500 returned a stunning +8.01% for the month. Smaller stocks performed even better: the Mid-cap 400 index returned +10.46%, and the Small-cap 600 index rose +10.64%. [Index returns: Standard and Poors]

January’s rally extended overseas as well, in spite of signs of slowing in a number of economies around the world and uncertainty over the path of the UK’s exit from the European Union and the political fate of UK Prime Minister Theresa May. The MSCI EAFE international equity index returned +5.46% in local currencies for the month. Possibly because of dovish rhetoric on the part of the Fed, the US dollar weakened a bit. It ended January at 108.84 yen, down from 109.7 a month earlier. It also slipped to $1.3135 against the pound Sterling, from $1.2763 at the end of December. The dollar was steady against the euro, ending little changed at $1.1454 against that currency. The dollar’s softness benefited US investors already holding overseas assets, and EAFE returned +6.57% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

The Fed’s more accommodative statements pushed interest rates a little lower. The yield on the two-year US Treasury fell to 2.45%, from 2.48% at the end of December. The ten-year yield ended January at 2.63%, from 2.69% a month earlier. As a result, the Bloomberg Barclays US Aggregate Bond Index returned +1.06% for the month. [Index returns: Bloomberg; Treasury yields: US Treasury]