During the first quarter, the Fed made a significant reversal of monetary policy (from tightening to easing) to diminish the December rate hike. Equity markets responded with a full recovery, as did high yield bonds and emerging markets securities. Interest rates also fell, responding to a move to neutral rate policy. The Fed has since talked rates down, discussing the risk of global economic slowing – particularly in China and Europe. The lack of inflation has also limited the need to hike. Despite moderation abroad, temperate Q1 US economic statistics, and the rate environment, the US economy is on solid footing. A Fed ease in 2019 is unlikely.
The recovery in the equity markets has again been led by growth stocks including technology and consumer cyclicals. Strong employment and income combined with lower taxes, corporate investment and earnings may enable the equity markets to move higher, with interest rates moderating at higher levels. Many of the risks evident in the first quarter such as a trade agreement with China and a government shutdown have faded away or improved. Volatility should subside over the next quarter.
Please review our detailed quarterly overview for more information on the economic and market environment. As always, we welcome your questions and comments. Please don’t hesitate to reach out to your advisor, should you want to discuss our outlook in greater detail.