Hello! I’m Derek Merkler and here is my economic update for April 2019.
I’ll discuss some of the major headlines that influenced markets in March and will provide insight into what these developments could mean for investors.
The 1stquarter of 2019 is behind us and major domestic indices have posted a strong performance for the year so far. Between January and March, the S&P 500 gained 13.1% –its best 1stquarter since 1998. The Dow Industrials and NASDAQ Composite also posted double-digit increases.[i]
While all 3 indices were up in March, their monthly gains were relatively small. The S&P 500 added 1.8%, the Dow hung on to a 0.1% gain, and the NASDAQ was up 2.6%.[ii]
Questions about the strength of both global and domestic growth contributed to market performance during the month.
Domestically, we had plenty to consider. The final reading of economic growth in 2018’s 4thquarter lowered to 2.2%. Despite this downward revision, real Gross Domestic Product was up2.9% in 2018.[iii]However, the 4thquarter’s slower pace reflected concerns that momentum from the 2017 corporate tax cuts may be starting to wane.[iv]
We saw these worries play out as Treasury yields fell and the yield curve inverted.[v]This development means that the yield on short-term Treasury Bills and Notes exceeded that of the 10-year Treasury Bond. This type of inversion hadn’t happened since 2007. Some investors believe that this occurrence could mean that an economic slowdown may be on the horizon.[vi]
During its March meeting, the Federal Reserve confirmed that economic growth has slowed. The Fed chose not to raise rates and removed any rate-increase projections for 2019. Chairman Jerome Powell also reinforced that both economic fundamentals and the labor market remain strong.[vii]
On the international front, the European Central Bank (ECB) cut its estimate for 2019 economic growth to 1.1% and announced a new stimulus program. These updates contributed to market uncertainty, especially as both Canada and Australia also appear to have slowing economies. Wall Street reacted to this news by posting several days of losses.[viii]
In addition, the ongoing question of what will happen with Brexit continued to play out in the background throughout the month.[ix]
Although markets may be experiencing uncertainty regarding both global and domestic growth, the news was not all negative in March. In the U.S., the latest data showed modest gains in personal income, new-home sales, and consumer sentiment.[x]Apparent progress in the trade talks with China also led U.S. markets to end the month on a high note.[xi]
As you can see, a lot of moving parts and key perspectives are affecting financial markets right now and it is difficult, if not impossible, to predict where the chips may fall in the near term. As Exhibit A, I’ll point to the fact that on Christmas Eve U.S. markets were on the cusp of a true bear market. 3 months later and we are near all-time highs once again.
And do not fret about the yield-curve inversion. Yes, there will be a recession at some unknown point in the future and yield curve inversions have predicted such recessions. Though the time between inversion and subsequent recession is often measured in years… and after significant increases in stock market values.
Translation: stick to your plan.
If you have any questions about what I’ve discussed in this video or if you are interested in having a fiduciary financial advisor on your side of the table, send me a message using the information in the credits. See you next month!
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Remember, the topics discussed in this video are for informational purposes only and that past results do not guarantee future performance. If you would like to discuss your financial situation, please email me at Derek.Merkler@Parsonex.com.