Weekly Market Commentary April 1, 2019

The S&P 500 rallied 1.2% last week as optimism about U.S.-China trade talks buoyed markets. The global MSCI ACWI gained 0.6%. The Bloomberg BarCap Aggregate Bond Index climbed 0.3%.

Brexit remains muddled. The British Parliament expressed its continued support of Brexit while failing to find majority support for any plan to make Brexit a reality. U.S. economic data showed slower-than-expected growth. Expectations are the European Union will extend the April 12 deadline to allow the British more time to sort out the issue.

Results for March and the first quarter were positive. The S&P 500 rose 1.9% in March and an impressive 13.6% during the first quarter. The MSCI ACWI gained 1.3% in March and 12.2% in the first quarter. Concerns about economic growth propelled the Aggregate Bond Index to a 1.9% gain in March and a 2.9% gain for the quarter.

Key Points for the Week

  • Stocks staged a strong rally in the first quarter.
  • Returns reversed nearly all of the losses from late 2018.
  • Valuations and economic growth are obstacles to reaching new highs.

Market Analysis


U.S. stocks rose at a blistering pace in the first quarter. Strong returns in January were followed by very strong performance in February and a very solid March. As the chart on the left shows, there weren’t a lot of downward moves, and investors may be wondering if the markets have moved too far, too fast.

The chart on the right shows the strong rally in the first quarter didn’t push the markets to new highs. Instead, the S&P 500 regained most of the losses it experienced since its peak in late September.

The sharp downturn and quick recovery align with key market events. The fourth-quarter decline was driven by concerns the Fed was going to keep raising rates and trade talks between the U.S. and China were not making progress. The first quarter saw investors become less concerned. The Federal Reserve announced rate hikes were on hold, and China and the U.S. made progress on trade.

It may come as a surprise the S&P 500 hasn’t reached new highs given the strong first quarter. Remember, the downturn experienced in the fourth quarter of 2018 was quite large. In addition, the percent return needed to get back to even is larger than the percent the market declined. For example, if you own a security that is $100 and drops 20% to $80, then the percent return needed to get back to $100 is 25%. The greater the downturn, the larger the recovery needs to be to fully regain losses.

The recovery in stocks has also taken us back to some of the issues that helped slow the advance in the third quarter of last year. Valuations are no longer cheap. Stocks trade at 16.3x forward earnings, which is 10% above the 10-year average, and first-quarter earnings are expected to drop compared to last year. Global economic growth remains under pressure, and the uncertainty regarding trade remains a risk. Improved news on these issues will be key to reaching new highs.

Fun Story

Prom-goers get photo-bombed by ‘zombies’ in Georgia

There are many things that could go wrong when doing an outdoor photo shoot, but getting photo-bombed by zombies typically isn’t one of them. A couple was recently taking prom pictures in Senoia, Georgia, which just so happens to be where the hit show “The Walking Dead” is filmed. The zombies weren’t actors or extras in the show but rather performers in the town who have embraced zombie-themed tourism.

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