- Global stocks rebounded to start 2019 after a volatile end to last year
- Fundamentals for the US economy and corporate earnings look attractive, but a host of ‘deadlines’ could present challenges
- The Fed maintained interest rates and took a lighter tone than in previous communications, resulting in a risk-on sentiment for January
Global stocks started 2019 in a strong way as investors saw opportunity after a deep selloff to end 2018. The S&P500 gained 8.01% in January, its strongest monthly return since October of 2015. Small caps led the way in the US, up 11.25%. Industrials +11.41%, Energy +11.11% and Real Estate +10.79% were the market leaders, but also among the worst performers during the December selloff. Growth stocks marginally outperformed value stocks, but all sectors were positive for the month.
While the fundamentals for the US economy and corporate earnings look attractive and support valuations, there are a host of ‘deadlines’ that are creating uncertainty. After the longest government shutdown in US history, the government was re-opened with a February 15 deadline. Another shutdown and its economic and political ramifications will most certainly be seen in a negative light. The second ‘deadline’ the market is watching is March 1st for a trade deal between the US and China, the world’s largest economic powers. Should a deal not get in place over lowering the trade deficit and more importantly, intellectual property and technology rights, additional tariffs will be put in place. The third ‘deadline’ causing a lot of angst in international markets is March 29th, when the UK is set to leave the European Union. UK firms doing business throughout Europe face the possibility of no legal trade agreements in place, and a potential halt to commerce.
Fixed income markets had a strong January, with the investment grade bond market gaining 1.06%. High yield +4.52% bounced back the most after a challenging end to 2018 when it lost 2.14% in December. The Fed maintained interest rates and took a lighter tone in their positioning for future rate hikes and balance sheet maintenance. JPMorgan expects one rate hike from the Fed this year, “keeping the risk of recession relatively low in 2019.” As always, please reach out to any member of the Bernardo Wealth Planning team with any questions or concerns.
Bill Roth, CFA
Sources: JPMorgan, Morningstar, Nuveen, Wall Street Journal