Now that taxes are done, many of us are opening our first quarter statements from our investment accounts, 401k accounts, or IRAs and seeing nice positive growth…which is certainly a relief from the end of 2018’s dizzying market drop.
In the first quarter of 2019, the US stock market has increased over 14%. International stocks were up over 10%, and even fixed income (bonds) had a great quarter.
In fact, Schwab calculated that if the S&P 500 continues at this pace, it will end the year up 65%!!
While we’d like the market rebound to be based on a huge positive shift in the underlying fundamentals of the US economy, it actually appears directly related to the change in tone from the Federal Reserve:
What we actually see in the fundamentals are signs of slowing and weakening growth in the US economy. Existing home sales fell in January 2019, along with a slight drop in retail sales. Corporate earnings growth may have peaked, and initial jobless claims have ticked up slightly. Liz Ann Somers, Chief Economist at Charles Schwab says: “Better or worse tends to matter more than good or bad, and the trend in many indicators is decidedly down.” The leading economic indicators (a composite of ten economic data points that tend to indicate growth or slowing) have appeared to peak:
While there are some signs the economy is slowing, the market may be able to hold on to some of its gains to date. We do need a spring break in the market. If the market can pause and allow corporate earnings to recover, more moderate market growth may be attainable:
But, as much as we’d like to see continued strong performance, we believe it is wise to be prepared (mentally, emotionally, and financially) for shorter-term downside and negative market surprises. There are many big looming events (Brexit, trade, US elections) that can spook investors, so we are preparing portfolios now to weather potential storms of volatility on the horizon. We encourage all investors to stay calm, prudent with their risk level, and patient if the market does have a spring break in growth.
Us on Spring Break: