The first quarter of 2018 began as the fourth quarter of 2017 ended: with strong market gains. The Nasdaq led the way by the end of January, followed by the large caps of the Dow and S&P 500. The employment sector remained strong, with 239,000 new jobs added in January and average hourly earnings climbing 0.3%. The trade gap continued to widen, which has proven to be a focal point of the current administration. Nevertheless, consumer confidence in the economy increased in January with expectations for continued strengthening in the coming months.
Volatility returned to the stock market in February, with major benchmark indexes posting notable losses from the prior month. The Nasdaq, while down, fared better than the large caps of both the S&P 500 and the Dow. Investor concerns over rising inflation and interest rates seemed to trigger volatility. A strong labor report in February revealed a 2.9% increase in average hourly wages over a year earlier, the addition of 313,000 new jobs, and decreasing unemployment insurance claims. These factors combined to prompt investors to conclude that higher labor costs may eat into corporate profits, which might prompt the Fed to raise interest rates at a faster pace. February also saw long-term bond yields surge as evidenced by a 16-basis-point increase in yields for 10-year Treasuries, as bond prices fell.
March was not a good month for benchmark indexes, except for the small caps of the Russell 2000. Otherwise, each of the major indexes closed March in the red, led by the Dow, which was followed by the Global Dow, Nasdaq, and the S&P 500. March brought more concerns for investors with the administration’s imposition of tariffs on steel and aluminum imports and the threat of a trade war with China. Much of the month saw retaliatory threats lobbed across the Pacific.
The first quarter as a whole saw only the Nasdaq post modest gains. The Dow fell by almost 2.50% by the end of the quarter, far outpacing losses suffered by other indexes. Prices for 10-year Treasuries fell by the end of the quarter, pushing yields up by 32 basis points.
Moving to the second quarter of the year, the economy is expected to maintain its course of relative strength. However, if news out of Washington continues to concern investors, market volatility is likely to prevail.
Source: Forefield Financial Communications.
Notes: The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.