March has traditionally been a good month for the markets and, coming off a disappointing performance in February, we were hoping March would help the early year rally get back on track. We did see solid buying interest during the first half of the month, but it was pretty steadily downhill from there. Technology stocks have been leading the rally since the Presidential election and weakness in that sector, combined with selling related to concerns about the impact of President Trump’s tariffs on the economic expansion, sent the market lower. The month turned out to be quite volatile and, at month end, the S&P 500 had lost 2.7% and is now down 1.2% for the year. Despite an impressive rally to end the month, Q1 was the first down quarter since September 2015.
The month got off to a rough start after Trump said he would announce tariffs the following week. Market participants were concerned such a move could start a trade war that would not only be inflationary, but could derail the economic recovery. The Dow lost 400 points on the 1st and ended the week with a 70 point decline on the 2nd. The S&P 500 was down .8% to start the month. The first full week of the month turned out to be the best performing week with a 335 point “buy the dip” Dow rally on Monday, and a 440 point Dow rally after release of the government jobs report on Friday, its 2nd best day this year. Mid-week we learned trusted Trump advisor Gary Cohn had decided to resign. Many thought this news would send the market sharply lower, but a 300 point drop in the Dow was nearly erased by the close. The S&P 500 ended the week with a strong 3.5% gain. The 2nd full week started with a new all-time high for the tech heavy NASDAQ on Monday, before some late day selling took the market lower. On Tuesday we learned Tillerson was out as Secretary of State and that sent the Dow -170 points. Selling continued on Wednesday after retail sales were down for a 3rd straight month. Rallies on Thursday and Friday did help but, the S&P 500 still lost 1.2% on the week. The 3rd full week of the month began with the news about Facebook and Cambridge Analytica which pressured the tech leadership group and took the Dow -335 points. Facebook lost 12% of its value in 2 days, and it was the beginning of aggressive selling in the overall technology index that had been the leadership group. Mid-week the Fed did raise interest rates by 25 basis points, but that was widely expected. Weakness in tech and growing concerns about a trade war sent the Dow down 725 points on Thursday, its worst day this year, and that was followed by a 400 point Dow selloff on Friday. For the week the S&P 500 lost an amazing 6% of its value, its biggest weekly decline in several years. This week was holiday shortened by Good Friday, but started with a 670 point rally on Monday after China said they are willing to talk trade. It was the best percentage gain for the index since 2015 and the 3rd largest one day point gain in history. However, persistent weakness in technology and a lack of a leadership group, kept pressure on the market this week until a strong rally on Friday.
April has, on average, been the 3rd best month of the year, closing higher 63% of the time. One reason may be the large amounts of money that flow into retirement accounts prior to the tax filing deadline. For several months we have been concerned about the markets being “richly valued”, but with the S&P 500 now trading 10% below the high for the year, we are less concerned. Tax reform should boost earnings by 10%-20% which should, without a further rally, make stocks much less expensive. All of the themes that pushed the S&P 500 up nearly 40% from election day through late January are still intact. The global economic expansion continues, corporate earnings growth is accelerating, and repatriation is bringing tens of billions of dollars back into the United States. Our current problem is lack of a leadership group but, once that emerges, we would expect the market to gain strength. If the market continues to struggle for leadership we would expect it to struggle to gain ground. We have raised some cash over the past few days that we hope to deploy as we see opportunities.
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