Q1 2019 was the best quarter the S&P 500 has had since 1998. Will this smooth sailing continue, or does the inversion of the yield curve signal rough waters ahead?
MARKET UPDATE MARCH 2019 TRANSCRIPTION
Hello, this is Ron Rough, Director of Portfolio Management at FSA with a market update for April.
2019 STARTED OFF STRONG
If we look at how stocks did in March, we’ll see that they continued on that upward rebound from the lows in December. This was a very strong quarter for stocks – the best quarter since 1998, I believe.
What we have noticed though, as we’ve gotten later into this recovery, is some separation among the different indexes. Large cap stocks continue to do very well, however, small cap stocks are actually negative in March. The average stock was down slightly. Also, foreign stocks had a hard time keeping up. So we’re starting to see some separation that we often see as a recovery carries on.
tHE YIELD CURVE INVERSION
What’s interesting for us, is that in March we had what is known as a yield curve inversion. And that just means that short-term interest rates were higher than longer-term interest rates.
Now why is that important?
Inverting yield curves have a long history of predicting future recessions. Every single recession in the U.S. going back over the last 50 years was preceded by an inverted yield curve. Now there have been occasions where the yield curve inverted and we didn’t have a recession, so it’s not a guarantee, but it is something to be paying attention to.
And the market did react negatively at first, and then it continued higher again. I think from our standpoint we do have concerns that the U.S. economy is slowing, the global economy is slowing, and at this point it seems that stock investors are taking that all with maybe more complacency than we think is necessary. So it’s a for us it’s an issue for concern.
FSA’S OUTLOOK
We’re continuing to invest the portfolio’s. At this point each strategy is probably at about 80% to 85% of its maximum equity allocation and so the market trend will tell us what to do. If it breaks to new all-time highs, which it’s getting close, then you’ll see our portfolios back to fully invested.
But one of the things we will be looking at are signs that the economy is slowing and what’s the impact of that on stock investors and bond investors.
So until our next update, thank you for watching and happy investing!
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