Coming off the December meltdown, the S&P 500 had gained more than 18% in just 44 trading days ending 2/28. With a strong upward move like that one could expect some “backing and filling” as those gains are digested, and that is much of what we saw in March. One of the biggest moves during the month was interest rates, as the yield on the 10-year Treasury dropped 10% to the lowest level in over a year. Some will point to recession fears for the decline, but it is important to note interest rates in many countries are far below our rates, which makes our Treasury securities attractive to global investors. Because of the large decline in March the market has become more focused on interest rates, rallying when rates rally and falling when rates decline. The market seems comfortable around the S&P 500 2800 level, as there were sellers on rallies above that level and buyers on declines below that area. At the end of the month the S&P 500 was up 1.8% and has gained 13.1% for the quarter, its best quarterly performance in 10 years and its best start to a year since 1998.
The month began with the market moving lower as the new month seemed to signal an opportunity to take profits after the strong rally. March 1st closed out the first down week for the Dow Industrials in 9 weeks and the market moved lower each of the next 5 days. In addition to profit taking, the Eurozone cuts its 2019 growth estimate, after China had done the same thing the week before, and we ended the week with a government jobs report that showed a very disappointing 20,000 new jobs were created in February. The jobs report was so poor that many dismissed it as somehow being related to the government shutdown or was simply a flawed report. At the end of the first 6 days of trading the S&P 500 had lost 1.5%. The second full week of the month began with a 12% plunge in Dow component Boeing, which began a tough period for the airplane manufacturer. Despite that news, after 6 days of declines, the S&P 500 moved to a new high for the year mid-week and ended the week with a 2.9% gain, the best weekly gain for the S&P 500 in 4 years. Last week a disappointing quarterly report from FedEx added to the global economic slowdown fears and several weak economic numbers out of Europe sent the market sharply lower on Friday. The S&P 500 ended the week with a loss of .7%. The final week of the month the market appeared to be fixated on interest rates, rallying when rates firmed and moving lower when rates moved lower. The bond market is much larger than the stock market and is seen by some as a leading indicator, so the stock market would currently like to see less buying in the defensive bond market, which would translate to higher interest rates. The week ended with the S&P 500 gaining another 2.1%.
April is historically one of the best months of the year for the stock market, as money flows into retirement accounts ahead of the filing deadline. The month has an average rate of return over 1% and has closed higher 64% of the time. The market is currently fixated on interest rates and we would expect movement in rates to continue to influence stock prices. After the dramatic decline in rates during March we would expect some stabilization in April which should help. If we are wrong and rates continue to decline at the speed we saw in March, that would be problematic for stocks. China trade will continue to be an important area of focus and good or bad news on those talks should move the market. There is clearly a slowing of global growth which should be negatively impacting stock prices, but many money managers believe a trade agreement with China will reignite the world’s two largest economies and reverse the decline we are seeing in global growth. After the best quarterly performance in 10 years we would not be surprised to see a pullback, but we continue to believe buying tradeable dips is a sensible strategy.
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