What happened in April?

Bolstered by strong corporate earnings reported for the first quarter, the S&P 500 Index experienced a small gain during the month of April. Of the 274 companies in the general market index that reported their first quarter earnings, almost 80% reported above analysts’ expectations. This number is above the long-term average of 64% and the four prior quarters’ average of 72%. Considering these strong numbers, the equity market’s reaction was relatively muted. The limited reaction may have been due to the equity market boost that already occurred in December from the tax overhaul, which somewhat priced in expected strong earnings for Q1. Trade restrictions and rising oil costs are putting pressure on manufacturers who are subsequently pushing some costs to consumers. As a result, inflation ticked higher in March, increasing by 2% from a year earlier according to the Commerce Department’s price index. A 2% rate of inflation is the Federal Reserve’s target and may put more pressure on the central bank to increase interest rates more quickly.

Across the globe, the pan-European index Stoxx Europe 600 gained in April on positive corporate earnings, despite some unfavorable economic news out of Germany and Italy. In the final hours before the deadline, the U.S. extended the implementation of tariffs going into effect on the Eurozone and other U.S. allies to June 1st, much to the relief of these countries.

What happened in March?

Equities advanced in early March but concerns over rising interest rates, global trade tensions, and a selloff in the technology sector stunted the rally and turned major stock indexes negative for the month. The S&P 500 Index posted a quarterly loss for the first time since Q3 2015. The Federal Reserve increasing their target interest rate in late March was largely priced into the market, however continually positive economic data had investors betting on a more aggressive schedule of rate increases in the coming years. U.S. tariffs and trade policies rattled the market with speculation of shrinking profit margins for multinational companies and material producers that rely on aluminum and steel imports. However, subsequent negotiations did help to quell some concerns. Growing controversy regarding Facebook’s handling of user data raised questions over possible increased regulation in the technology sector. As a result, the high-flying sector, which accounted for almost 25% of the S&P 500’s market value, drove the overall market lower.

Across the globe, European stocks rallied in the final week of the month to get back to relatively flat and Asian markets saw less of an impact from U.S. technology stocks’ decline, although trade tensions with the U.S. weighed on the Pacific region.

What happened in February?

February began with an abrupt reintroduction to stock market volatility. A selloff that started on January 26th extended to February and shaved 10% off of the S&P 500. This is the first time the general market index was pushed into correction territory since late 2015. The reasons behind the selloff are numerous but are largely based off a realization of and reaction to the increased likelihood of a spike in inflation and subsequently increasing interest rates and bond yields. One concern for equity investors is that rising bond yields will attract more investors to bonds, which will lower demand for stocks and pull prices lower. However, a strong Q4 earnings season and continually strong macroeconomic data drove the market higher from the bottom on February 9th. During this positive run of 5%+, the S&P 500 recorded its best week (2/12 – 2/16) since 2013. The new Federal Reserve Chairman, Jerome Powell, gave testimony to Congress affirming the strong state of the U.S. economy, accrediting speculation over rising interest rates and driving the general market down slightly at the end of the month. U.S. bond prices were pushed down by the 10-year Treasury yield climbing to 2.86% at the end of February from 2.73% at the start the month (bond prices decline as yields increase).

Across the globe, international stocks moved in sync with the U.S. stock market’s fall and subsequent rebound during the month. However, international markets ended the month lower than the U.S. due to similar inflation concerns, a lack of progress from Brexit discussions and Chinese factory activity slipping to a 19-month low.

What happened in January?

U.S. equities got off to a strong start in 2018 as the three major domestic indexes hit new highs in January before drawing back at the end of the month. Despite the strong numbers, rising bond yields (the 10-year Treasury note hit its highest yield since April 2014) and large intraday declines in the final days of the month raised concerns over the sustainability of such a high-priced market. Volatility in the U.S. also picked up in January with the VIX hitting a five-month high. With over half of the companies in the S&P 500 having reported, 81% beat analysts’ estimates helping to push the S&P 500 to monthly gains on the final trading day of the month.

Across the globe, French GDP rebounded significantly last year growing at its fastest rate since 2011 and boosting Eurozone GDP growth. Often an economic laggard, France’s reemergence is a positive macroeconomic indicator for the Eurozone. Emerging markets continued their positive run into 2018, boosted by a weak dollar, globally low bond yields and increasing flows of investments from around the globe.

What happened in November?

Global equities continued to move higher as major market indices reached new milestones again in November, specifically the Dow Jones Industrial Average (DJIA) which moved above 24,000 for the first time ever. Coming 30 trading sessions after its last, this marks the 5th thousand-point milestone this year. The S&P 500 also hit a new high this year, passing 2,600 and moving up 3.0% for the month. Helping the cause, the U.S. GDP growth rate was revised up for the third quarter to 3.3% and the International Monetary Fund raised its global growth forecasts to 3.6% for this year and 3.7% next year.

Proposed U.S. tax reform legislation, a big driver of recent market advances, hit a snag over concerns about the impact of a significantly lower corporate tax rate on federal deficit. This complication will delay the next senate vote and likely extend the previously aggressive timeline of passage. In monetary policy news, Janet Yellen provided a mostly positive assessment of the U.S. economy in her congressional testimony and confirmed the Fed’s continued plan of gradual rate increases. Across the globe, a strong month (and a stronger year) for tech stocks that pushed the sector of the MSCI Emerging Markets Index above the financial sector for the first time since 2004 ended with declines in the final trading days of November.