As of March 31, 2019
On the back of the Fed’s dovish pivot, risk assets are off to a banner start with the MSCI All-Country World Index (on a local currency basis) and the S&P 500 indexes returning 12.4% and 13.6%, respectively, over the first three months of the year. This is their strongest quarterly return since September 2009 and the best first quarter since 1998. Commodities were also up strongly as oil had its best quarter in almost a decade. Does this foreshadow significant upside for the remainder of the year, or will markets trade sideways from here? Unusually strong starts have historically led to further strength, but with the bond market signaling that the end of the cycle may be near, markets may need another catalyst to carry the torch from here.
Back to Lower for Longer?
Government bond yields around the world continued to slide as dovish signals for both the Fed and the European Central Bank (ECB) sent the yield on the 10-year U.S. Treasury note to its lowest level since December 2017. While the U.S. Fed sees solid underlying economic fundamentals, they have indicated that they are willing to be patient in the face of low inflation and slowing growth and the bond market is pricing in an outright cut in 2019. At the same time, the ECB has further delayed its timeline policy normalization and announced additional stimulus, highlighting concerns about slowing global growth. Is the recent rally in rates simply an extension of the cycle or a harbinger of recession?
Coming in for a (Soft) Landing
China’s recent economic slump appears to be stabilizing as the effects of stimulus measures begin to filter through the economy. Chinese fixed asset investment and manufacturing Purchasing managers’ Index (PMI) beat expectations last month, thanks to infrastructure spending, with the PMI posting the biggest increase in seven years and the first significant monthly improvement since mid-2018. Additionally, despite ongoing posturing from negotiators from the U.S. and China, both sides seem keen to broker a deal to head off an escalation of a trade war that has been weighing on global sentiment. While clearly positive, will these green shoots be enough to stabilize global growth?
For a region-by-region overview, download the PDF.
Past performance is not a reliable indicator of future performance.
Sources: J.P. Morgan Chase & Co., Standard & Poor’s, Haver Analytics / People’s Bank of China, Caixin / IHS. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Source for MSCI data: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright © 2019, Bloomberg Index Services Ltd. Used with permission.
Certain numbers in this report may not equal stated totals due to rounding.
Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
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