Market Reviews 2019

The strong market momentum of October and November persisted in December. Market participants greeted favorably an announcement to the effect that the US and China have agreed on the outline of a “phase one” trade agreement. Most seemed to discount as unimportant the lack of details as to the scope and content of the deal, nor did many seem to worry that actually concluding the phase one deal might prove difficult. The general election in the UK gave the Conservative Party, under the leadership of Prime Minister Boris Johnson, a surprisingly strong majority in the House of Commons. The outcome generally resolved the lingering uncertainty as to whether the UK will leave the European Union — that result is now very likely — and raised hopes that the exit will be less chaotic than some had feared. The markets also shrugged off the impeachment of the President, as market participants seemed to regard it as an event whose consequences will play out in the political realm, but not the economic. Meanwhile, the Fed continued to signal that it would maintain its current monetary stance, and a new spending bill passed Congress, assuring that fiscal policy would also remain stimulative. Overall, the S&P 500 index returned +3.02% for the month. The Mid-cap 400 index returned +2.81%, and the Small-cap 600 index returned +2.99%. [Index returns: Standard and Poors]

Stocks also rose overseas. The MSCI EAFE international equity index returned +1.34% in local currencies. A general increase in interest rates, especially in Europe, strengthened other currencies against the dollar. The implications of the UK election for a more orderly exit from the EU also helped strengthen both the euro and the pound Sterling. The dollar slipped to end December at 108.67 yen, from 109.47 at the end of November. It ended the year at $1.3269 to the pound Sterling and $1.1227 to the euro, weakening from its month-earlier levels of $1.2939 and $1.1019, respectively. As a result, EAFE returned +3.25% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

While the Federal Reserve’s posture kept short-term interest rates reasonably well anchored, longer-term rates rose. The yield on the two-year US Treasury ended December at 1.58%, not far from its November 30 level of 1.61%. The ten-year yield, however, rose to 1.92%, from 1.78% a month earlier. As a result the Bloomberg Barclays US Aggregate Bond index returned -0.07% for the month. [Index returns: Bloomberg; bond yields: US Treasury]

The market recovery of the last portion of October gathered momentum in November. Economic indicators and corporate results continued to be reasonably good, and the Federal Reserve continued to signal its intention of maintaining its current monetary policy stance for the time being. The market advanced in spite of a number of sources of uncertainty, which remain unresolved. Trade negotiations between the US and China appear to have stalled, although many investors still seem to regard statements from the White House and trade officials as newsworthy. Negotiations concerning the likely exit of the UK from the European Union are also on hold, pending the results of a general election in that country in December — an election that has become necessary because of that controversy. And back in the USA, impeachment hearings in the House of Representatives have also contributed to a general atmosphere of uncertainty. Nevertheless, the US stock market gained steadily during November, with the S&P 500 index ending the month with a return of +3.63%. The Mid-cap 400 index returned +2.98%, and the Small-cap 600 returned +3.06%. [Index returns: Standard & Poors]

International equity markets also exhibited a generally favorable tone. The MSCI EAFE international equity index returned +2.09% in local currencies. The US dollar also exhibited strength, advancing to end November at 109.47 yen, compared to 108.09 at the end of October. It also strengthened to $1.1019 against the euro, from $1.1155 a month earlier. The dollar ended the month unchanged, at $1.2939, against the pound Sterling. Because of the currency movements, EAFE only gained +1.13% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release].

Interest rates generally drifted moderately higher during November. The two-year US Treasury note yielded 1.61% at the end of the month, compared to 1.52% a month earlier. The ten-year yield rose to end November at 1.78%, from 1.69% on October 31. The Bloomberg Barclays US Aggregate Bond index returned -0.05% for the month. [Index return: Bloomberg; Treasury yields: US Treasury]

After a nervous summer, markets entered October, traditionally regarded as one of the most perilous months of the year, with initial losses and choppy trading. After about October 10, though, a more favorable sentiment appeared to take hold, and equity markets moved higher. The advance occurred in spite of a lack of clarity concerning a variety of issues. The markets responded favorably to encouraging announcements regarding trade talks with China, but market participants also expressed increasing skepticism that any meaningful process had actually taken place. In the UK, Parliament successfully avoided having that nation crash out of the European Union without any sort of agreement, instead delaying any exit and moving toward new Parliamentary elections in December. Economic data and corporate results were reasonably good. The Federal Reserve met market expectations by lowering its policy interest rate at its meeting near the end of the month, but the Fed also signaled that they probably will not make any further interest rate moves soon. News reports noted that the Federal deficit for the fiscal year just ended was nearly $1 trillion, but the markets did not react to those reports. The action of the last three weeks of October carried the S&P 500 index to a return of +2.17%. The Mid-cap 400 index returned +1.13%, and the Small-cap 600 +2.09%. [Index returns: Standard and Poors]

Global stocks also advanced. The MSCI EAFE international equity index returned +1.67% in local currencies. The US dollar remained little changed against the yen, ending the month at 108.09, compared to 108.11 at the end of September. The easing of the risk of a chaotic exit of the UK from the European Union gave strength to the pound Sterling and the euro. The dollar ended October at $1.2939 to the pound and $1.1155 to the euro, after trading at levels of $1.2305 and $1.0905, respectively, a month earlier. The currency movement was favorable to US holders of foreign stocks, and EAFE returned +3.59% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

Conforming to the Fed’s policy decision, short-term interest rates fell. The two-year US Treasury yield ended the month at 1.52%, down from 1.63% a month earlier. Longer-term rates, however, barely budged: The ten-year Treasury yielded 1.69% at the end of October, little changed from its September 30 level of 1.68%. The Bloomberg Barclays US Aggregate Bond index returned +0.30% for the month. [Index returns: Bloomberg; Treasury yields: US Treasury]

The momentum from the powerful market recovery of June continued, although in somewhat attenuated form, into July. As the month progressed, however, that momentum waned, largely because of an ongoing litany of economic uncertainties. The progress of American trade negotiations with China grew increasingly doubtful. Indications of slower economic growth in Europe coincided with a change of leadership in the UK, adding to uncertainty regarding the mode and implications of the UK’s exit from the European Union. Meanwhile, a rhetorical confrontation between the White House and the Federal Reserve created some confusion as to the likely future direction of monetary policy. All these uncertainties persisted throughout the quarter, as trade talks remained stalled, UK Prime Minster Boris Johnson seemed determined to drive his country toward a disorderly exit, and the White House continued to attack the Fed, even as the Open Market Committee made two quarter-point rate cuts during the quarter. But by September, market reaction to new developments on all these fronts had become more muted. Even House Speaker Pelosi’s announcement of a formal impeachment inquiry drew only a mild reaction. For the full quarter, the S&P 500 index returned +1.70%. In contrast, the Mid-cap 400 index returned –0.09%, and the Small-cap 600 index –0.20%, for the full period. [Index returns: Standard and Poors]

Overseas stocks mirrored their US conterparts, even though signs of slowing in a number of economies around the world persisted, and if anything, uncertainty over the path of the UK’s exit from the European Union increased. The MSCI EAFE international equity index returned +1.75% in local currencies. The US dollar showed strength against other currencies. It edged up to 108.08 yen from 107.84 at the end of June. It strengthened sharply against the euro and pound Sterling, ending September at $1.0896 to the euro and $1.2289 to the pound, compared to levels of $1.1374 and $1.2704 at the end of the previous quarter. EAFE returned –1.07% in US dollars for the quarter. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release and Yahoo! Finance]

Interest continued to fall sharply, as the Fed proved willing to adopt a more accommodative stance. The two-year Treasury yield ended the quarter at 1.63%, down from 1.75% at the end of June. The ten-year yield also fell, ending September at 1.68%, from 2.00% three months earlier. The Bloomberg Barclays US Aggregate Bond Index returned +2.27% for the quarter. [Index return: Bloomberg; Bond yields: US Treasury]

After the volatility of the previous six months, market participants braced themselves for continuing volatility during September. The external sources of uncertainty had not abated. Trade tensions between the US and China were as unsettling as ever, and the British Prime Minister seemed determined to drive toward a disorderly exit of his country from the European Union, thereby causing economic heartburn on both sides of the English Channel. Meanwhile, signs of slowing economic growth continued to appear in a number of places around the world, and interest rates remained extremely low — negative, in fact, on a wide array of fixed income instruments. Yet the markets were eerily calm for most of the month, not really even responding sharply to news late in the month of the opening of a formal impeachment inquiry in the US. For the month the S&P 500 index returned +1.87%, and smaller stocks out-performed large ones for a change. The Mid-cap 400 index returned +3.06%, and the Small-cap 600 index returned +3.34%. [Index returns: Standard and Poors]

Global stocks also whistled past the various sources of market uncertainty. The MSCI EAFE international equity index returned +3.54% in local currencies. With US interest rates generally higher than other rates around the world, the US dollar remained strong. It advanced to 108.08 yen at September 30, from 106.30 a month earlier. It also strengthened to $1.0896 against the euro, from a level of $1.1011 at the end of August. The dollar eased a bit against the pound Sterling, ending the month at $1.2289 against that unit, compared to $1.2159 on August 31. The currency movement attenuated gains for US investors in international investments, and EAFE returned +2.87% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release, Yahoo! Finance]

The Federal Open Market Committee held one of its regular meetings during September, at which they reduced their target Federal Funds rate by 0.25%, to a range of 1.75% – 2%. Even so, interest rates further out the yield curve rose. The yield on the two-year US Treasury ended September at 1.63%, up from 1.50% at the end of August. The ten-year yield rose a bit more sharply, to 1.68%, after ending the previous month at the same 1.50%. Reflecting the rise in rates, the Bloomberg Barclays US Aggregate Bond index slipped by -0.53% for the month. [Index returns: Bloomberg; Treasury yields: US Treasury]

Financial markets have been nervous and volatile since May, and they continued in that mode during August. Trade policy continued to be the principal source of uncertainty, as trade-related rhetoric emanating from both Washington and Beijing took on a distinctly negative tone. Protests in Hong Kong added a general sense of geopolitical uncertainty, as well as unpredictability in US-China relations. At the same time, the machinations of the new UK Prime Minister, Boris Johnson, appeared set (at least during August) to drive that nation toward a “no-deal Brexit” — a chaotic exit from the European Union, without formal trade agreements in place to replace the European Union treaty arrangements. The odd one-way feud between the White House and the Federal Reserve also continued on Twitter, drawing attention to uncertainty regarding the path of monetary policy in the near future. In addition, gathering signs of possible economic weakness added to investors’ nervousness. For the month the S&P 500 returned –1.58%, but the overall market weakness was worse than this figure would suggest. The Mid-cap 400 index returned –4.19%, and the Small-cap 600 index returned –4.51%. [Index returns: Standard and Poors]

International stocks accompanied their US counterparts lower, reflecting the global nature of the current trade uncertainty. The MSCI EAFE international equity index returned –2.42% in local currencies. The US dollar strengthened sharply against the euro, ending August at $1.0989 against that currency, compared to $1.1130 at the end of July. But the dollar fell to 106.30 yen, from 108.58 a month earlier. It did strengthen against the pound Sterling, but only by a bit. $1.2166 bought one pound at the end of August, where the parity was $1.2220 to the pound on July 31. EAFE returned –2.59% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

The most dramatic market move during August was in interest rates, both responding to, and transmitting, signals of a possible economic slowdown in the coming months. The yield on the two-year US Treasury note ended August at 1.50%, a sharp drop from its July 31 level of 1.89%. The ten-year yield fell even more sharply. It, too, ended the month at 1.50%, having stood at 2.02% a month earlier. For several days near the end of the month the two-year yield was a bit higher than the ten-year, an inversion in the yield curve, which many market observers regard as a warning sign of a possible future recession. Bond prices jumped to reflect the drop in yields, and the Bloomberg Barclays US Aggregate Bond Index returned +2.59% for the month. [Index returns: Bloomberg; Bond yields: US Treasury]

The momentum from the powerful market recovery of June continued, although in somewhat attenuated form, into July. As the month progressed, however, that momentum waned, largely because of an ongoing litany of economic uncertainties. The progress of American trade negotiations with China grew increasingly doubtful. Indications of slower economic growth in Europe coincided with a change of leadership in the UK, adding to uncertainty regarding the mode and implications of the UK’s exit from the European Union. Meanwhile, a rhetorical confrontation between the White House and the Federal Reserve created some confusion as to the likely future direction of monetary policy. On the last day of the month the Federal Open Market Committee did in fact lower its policy interest rate by 0.25%, a move that Fed Chair Jay Powell characterized as a “mid-course correction,” rather than the start of a new cycle of monetary easing. Mr Powell’s description left unsatisfied some investors, who had evidently wanted more aggressive stimulus. For the month the S&P 500 index returned +1.44%, with the gains concentrated among the largest issues. The Mid-cap 400 index returned +1.19%, and the Small-cap 600 index returned +1.14% [Index returns: Standard and Poors]

Despite the softness in Europe, the MSCI Barra EAFE international equity index returned +0.71% in local currencies. The dollar advanced sharply, as trade volumes declined and interest rates in much of Europe fell. A significant quantity of sovereign debt, particularly in Europe, now pays negative rates of interest, adding to the appeal of the dollar, in which interest rates are positive, if modest. The dollar advanced to 108.58 yen from 107.84 a month earlier. It also strengthened to $1.1130 against the euro, compared to $1.1374 at the end of June. And it strengthened to a startling $1.2220 against the pound Sterling, from $1.2704 on June 30, as investors reacted to uncertainty over how Boris Johnson, new UK Prime Minister, will shepherd that nation through its European exit. For US investors, the strength of the US dollar swamped the modest gains in overseas stocks, and EAFE returned –1.27% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

Despite the late move by the Federal Reserve, interest rates crept up during the month, especially at short maturities, resulting in a significant flattening of the yield curve. The two-year US Treasury note ended July at a yield of 1.89%, compared to 1.75% at the end of June. The ten-year yield edged up to 2.02%, from 2.00% a month earlier. The Bloomberg Barclays US Aggregate bond index returned +0.22% for the month [Index return: Bloomberg; Treasury yields: US Treasury]

In April the US stock market continued its rebound from the severe downdraft it had suffered in the last part of 2018. Many analysts had expected corporate earnings to contract relative to previous periods, but as earnings reports came in, they showed that those lowered expectations were too pessimistic. The market reversed course in May, due largely to an unexpected souring of trade negotiations between the US and China, along with the surprise announcement from the White House near the end of the month, threatening tariffs on goods from Mexico unless that country takes steps to support the US Administration’s immigration policy. Markets reversed course again in June, rising as the tone of trade-related discussions seemed to improve. Markets also reacted favorably to a weak jobs report for May. Apparently, many observers believe that such signs of weakness could create an opportunity for the Federal Reserve to reduce interest rates, which many (though not all) suppose would provide a boost to the market. After all the volatility, the S&P 500 index returned +4.30% for the quarter. The gains were rather narrow — the Mid-cap 400 index returned +3.05%, and the Small-cap 600 index +1.87%, for the full period. [Index returns: Standard and Poors]

Overseas stocks mirrored their US conterparts, in spite of continuing 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 choice of a successor for UK Prime Minister Theresa May. The MSCI EAFE international equity index returned +2.80% in local currencies. The US dollar was mixed against other currencies. It fell to 107.84 yen from 110.68 at the end of March, and it slipped to $1.1374 against the euro, compared to $1.1228 on March 31. It strengthened, however, to $1.2704 against the pound Sterling, compared to $1.3032. EAFE returned +3.68% in US dollars for the quarter. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

Interest rates fell sharply, as the market sentiment continued to favor a belief that the Fed may soon adopt a more accommodative stance. The two-year Treasury yield ended the quarter at 1.75%, down from 2.27% at the end of March. The ten-year yield also fell, ending March at 2.00%, from 2.41% three months earlier. The Bloomberg Barclays US Aggregate Bond Index returned +3.08% for the quarter. [Index return: Bloomberg; Bond yields: US Treasury]

Financial markets continued to exhibit substantial volatility during June, as market participants remain uncertain as to the direction of the economy, as well as the direction of economically-relevant actions emanating from Washington. The month began with the announcement that the Administration will back off from its threat to impose additional tariffs on goods from Mexico, news that generated a favorable market response. Markets also reacted favorably to a weak jobs report for May. Apparently, many observers believe that such signs of weakness could create an opportunity for the Federal Reserve to reduce interest rates, which many (though not all) suppose would provide a boost to the market. Signals regarding the progress of trade talks with China remain ambiguous, but an apparent thawing in those relations also provided a lift. The G-20 economic summit in Osaka, June 28-29, took place too late in the month to have much effect on the markets. In all, stocks staged an advance that offset the decline they had posted for May; the S&P 500 index returned +7.05% for the month. Smaller stocks also participated in the rally, with the Mid-cap 400 index returning +7.64%, and the Small-cap 600 +7.45% [Index returns: Standard and Poors]

Global markets also advanced, despite uncertainty over the leadership contest in the UK and the shape the UK’s exit from the European Union will take. The MSCI EAFE international equity index returned +4.27% in local currencies. The US dollar weakened, largely due to speculation on the possibility of easing by the Federal Reserve. It fell to 107.84 yen at the end of June, from 108.66 at the end of May. It also weakened to $1.2704 against the pound Sterling, and $1.1374 against the euro, from month-earlier levels of $1.2620 and $1.1149, respectively. The decline gave a boost to US-dollar returns on foreign assets, and EAFE returned +5.93% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

Interest rates continued to fall as signs gathered of possible economic softness and possible Fed easing ahead. The yield on the two-year US Treasury note fell to end June at 1.75%, from 1.95% at the end of May. The ten-year yield ended the month at 2.00%, compared to 2.14% a month earlier. As rates fell, bond prices rose, and the Bloomberg Barclays US Aggregate Bond index returned +1.26% for the month. [Index returns: Bloomberg; Bond yields: US Treasury]

The strength that characterized the US stock market for the first four months of 2019 abruptly ran out at the beginning of May, and the market reversed course, falling sharply throughout the month. The principal change in the economic environment, which seems to have led to the market decline, was an unexpected souring of the tone of trade negotiations between the United States and China. During the course of the month, market participants appear to have internalized the possibility that a trade war may in fact be on the horizon, and that it could lead to a pronounced economic slowdown. Compounding the trade worries was the surprise announcement from the White House near the end of the month, threatening tariffs on goods from Mexico unless that country takes steps to support the US Administration’s immigration policy. The US stock market gave up more than it had gained in April: The S&P 500 index returned -6.35%. Smaller stocks fared even worse; the Mid-cap 400 index returned -7.97%, and the Small-cap 600 index returned -8.73%. [Index returns: Standard and Poors]

Overseas markets continued to mirror the up one month, down the next volatility of the US market. In the UK, the political machinations about that nation’s exit from the European Union ground on, and have now cost Prime Minister Theresa May her leadership post. The MSCI EAFE international equity index returned -4.63% in local currencies. The US dollar rose against European currencies, ending the month at $1.262 against the pound Sterling and $1.1149 against the euro, from $1.303 and $1.1201, respectively, a month earlier. The dollar slipped, though, to 108.66 yen, from 111.40 at the end of April. The net currency effect for US investors was small, and EAFE returned -4.80% in US dollars. [Index returns: MSCI; currency rates: Federal Reserve H.10 release]

The market weakness and trade tensions brought with them some early indications from the Federal Reserve that they may be re-evaluating the direction of monetary policy, increasing the chance of monetary easing in the coming months. That, along with concerns about possible coming economic softness, drove interest rates sharply lower. The yield on the 2-year US Treasury note fell to 1.95% at the end of May, compared to 2.27% at the end of April. The ten-year yield fell to 2.14%, from 2.51% a month earlier. As a result, the Bloomberg Barclays US Aggregate Bond index returned +1.78% for the month. [Index returns: Bloomberg; Treasury yields: US Treasury]

In April the US stock market continued its rebound from the severe downdraft it had suffered in the last part of 2018. Many analysts had expected corporate earnings to contract relative to previous periods, but as earnings reports came in, they showed that those lowered expectations were too pessimistic. Economic data were generally favorable as well. Market participants also expressed optimism for a trade agreement with China. Savvier observers wonder how such a deal, which would govern our bilateral trade with China through direct arm-wrestling with a powerful rival, would be an improvement over the existing multi-lateral system which the US designed and has been leading for nearly three-quarters of a century. Nevertheless, even these observers generally agree that a trade agreement would be preferable to a ruinous trade war. Overall, the S&P 500 index returned +4.05% for the month. Returns were good across market capitalization ranges. The Mid-cap 400 index returned +4.02%, and the Small-cap 600 returned +3.87%. [Index returns: Standard and Poors]

Global equity markets also performed well. One potential problem, the possibility of a disorderly exit by the UK from the European Union, is at least on hold for a time. The MSCI EAFE international equity index returned +3.38% for the month. The US dollar generally strengthened. It ended April at 111.40 yen, up from 110.68 at the end of March. It also strengthened to $1.1201 to the euro, from $1.1228 a month earlier. The dollar ended the month at $1.3030 to the pound Sterling, nearly unchanged from its months-earlier level of $1.3032. Because of the strength of the dollar, EAFE returned only +2.81% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

The Federal Reserve made clear that, in spite of the urging of various White House officials, it has no inclination to add further monetary stimulus to an economy that does not, in its view, need it. The yield curve steepened in response, with short-term interest rates holding steady while longer-term rates rose. The yield on the two-year US Treasury ended April at 2.27%, unchanged from the end of March. The ten-year yield rose, however, ending the month at 2.51%, up from 2.41% a month earlier. The corresponding fall in bond prices, on average, just offset the income from investment-grade bonds, and the Bloomberg Barclays US Aggregate Bond index returned just +0.03% for the month.

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]