Strong Market Rally After Weak End to 2018

A wave of optimism entered the New Year, driving equities and credit markets higher globally. In this Market Review, we note that the S&P 500 ended its best quarter in nearly a decade on Friday, surging 13.1% in the first three months of 2019. Other investments, such as junk bonds and foreign stocks, also bounced back from the poor performance of late 2018. However, despite the impressive rally, major indices are still below the levels they reached at the beginning of Q4 2018, following the sell-off caused by concerns over the U.S.-China trade war, fears of rising interest rates harming the U.S. economy, and worries about a global slowdown, particularly in the U.S.

The Fed’s Response and Continued Growth Outlook

The weakness in Q4 2018 set the stage for this year’s recovery. The Federal Reserve (Fed) adjusted its stance on monetary policy, signaling patience in response to market turbulence and global growth concerns. Much of this year’s rally is built on the expectation that the Fed won’t raise interest rates anytime soon, with the bond market now anticipating a rate cut. The Market Review also reflects how the steep decline in late 2018 helped ease the risk of further U.S. tariffs on China, effectively reducing two of the key factors that had caused the market drop in the first place.

For the recovery to maintain its momentum, global growth must stabilize, extending what has already been an unusually long economic expansion. However, current economic indicators show that U.S. growth remains solid. In this Market Review, any market pullback should be viewed as a healthy correction rather than the beginning of a prolonged bear market.

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