The US equity markets bottomed out during the fourth quarter of 2018 but recovered in earnest during the first quarter of 2019. The federal government shutdown provided a backdrop of uncertainty at the start of the year, but as these fears subsided, information technology and real estate companies added to their price gains, with industrials not far behind. The health care sector gave back some of its recent relative gains, while financials struggled with the prospect of a flattening yield curve.
The majority of the first quarter’s stock rally came from the expansion of price-to-earnings multiples, and the effects of a dovish Federal Reserve and improving market sentiment could be seen in the price investors were willing to pay for those projected earnings. On a common investment factor basis, companies with strong long-term price momentum outperformed companies with favorable valuations and better earnings quality. Companies with higher forecasted long-term earnings also came back into favor.
Stocks were not alone when it came to positive performance for the quarter.
Dovish comments from the Federal Reserve, in conjunction with ECB downgrades on growth, pushed rates down through March, unsurprisingly helping credit markets across the board. Like their counterparts in the stock market, fixed income securities posted strong gains for the period. The first three months of 2019 were unusual in that positive performance was almost universal; corporate and government bonds across all currencies, risks, durations, and geographies performed well.
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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.