Weekly Market Digest: Stocks Finish Q1 on a High Note

Stocks finished a torrid Q1 on a high note, marching higher on reported progress on a trade deal with China and Mueller report findings that there was no direct collusion with Russia. Brexit chaos continued, with the possibility of a no-deal exit increasing. Markets outside of Europe were not phased. Lyft punctuated the strong quarter with a robust IPO valuing the company at $22 billion.

Weekly Returns

S&P 500: 2,834 (+1.2%)
FTSE All-World ex-US (VEU): (+1%)
US 10 Year Treasury Yield: 2.41% (-0.03)
Gold: $1,292 (-1.6%)
EUR/USD: $1.122 (-0.7%)

Major Events

  • Monday – President Trump signaled he would support release of the Mueller report which he claimed exonerates him regarding Russian interference with the 2016 election.
  • Tuesday – The House came up short in a measure to overturn President Trump’s veto of efforts to invalidate his declaration of national emergency on border control.
  • Wednesday – Global bond yields fell following comments from the ECB suggesting it would delay interest rate hikes.
  • Wednesday – UK Prime Minister Theresa May pledged to resign if her Brexit deal was passed.
  • Thursday – Wells Fargo CEO Tim Sloan resigned, suggesting it was time for outside leadership as the bank tries to recover from previous scandals.
  • Friday – Lyft staged a successful IPO, valuing the company at $22 billion.
  • Friday – Britain edged closer to a general election and the potential of a no deal Brexit as Parliament rejected Theresa May’s deal for a third time.

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Our Take

The first quarter was a lot like watching the dismal fourth quarter of 2018 in reverse. Starting last October, stocks began a swift decline driven primarily by three fears: trade war, rising interest rates/yield curve inversion, and slowing earnings growth. For Q4 overall, US stocks fell 14%. Global stocks finished the year down nearly 10%.

So far this year, each of those fears has regressed. Significant progress has been made toward reaching a trade agreement with China, the Fed has changed course and now does not expect to raise short term rates in 2019, and earnings results were “good enough”.

US stocks responded with their best quarterly results since 2009, up 13.9% (VTI), International equities, which held up better in Q4 rose less in Q1 +10.4% (VEU). Not everything was a mirror image. Longer term interest rates fell in Q4 and continued falling in Q1, driving bond prices higher. Some view this as bullish for stocks because lower interest rates encourage investment, support housing prices, and justify higher valuations. Others see it as a bearish indicator that economic growth will slow.


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