Key Takeaways:
- Stock prices have bounced back from the lows of December with most markets exhibiting strong returns for 2019
- The US economy grew 2.6% in Q4, alleviating some of the recession fears over the coming quarters
- The China trade negotiations seemed to be progressing forward
2019 has been a positive year for risk assets with the S&P500 gaining 3.21% in February and 11.48% for the year. Every sector of the domestic stock market has been positive, with industrials, technology and energy leading the way. International markets are also seeing positive performance for the year, both developed +9.29% and emerging +9.01. Small cap stocks (+17.03%) have seen the biggest rebound from the December lows, and both value and growth stocks have performed well.
Interest rates increased in February as investor anxiety over the trade war and Fed policy decreased. The additional $200 billion tariffs on Chinese imports that were set to begin on March 1st were postponed, as progress on negotiations appeared between the two largest economies. The Fed eased its rhetoric and appears to be taking a more patient policy approach to interest rates, causing risk assets to accelerate.
The US economy grew 2.6% in the fourth quarter of 2018, bringing GDP growth to 2.9% for the year. Consumer and business spending were the bright spots of the data, while the deficit and overall debt remain a concern. With inflation remaining relatively tame and the Fed taking a softer approach to rate normalization, interest rates may be range bound over the near term. As the yield curve continues to remain flat, we favor the short end of the curve over longer duration bonds.
Commentary by:
Bill Roth, CFA
Investment Director
Sources: Reuters, Morningstar, Wall Street Journal