A look at the first quarter of 2018.
First Quarter 2018: Market Review & Outlook
Executive Summary:
- Volatility Returns. Volatility returned in Q1 with stocks falling sharply after peaking in January. A long winning streak in stocks came to an end with the Dow Jones Industrial Average declining 2.5% for its first quarterly loss in more than two years and the S&P 500 falling about 1%.
- Fretting Over the Fed. Economies both here and abroad continue to expand, but if this strength takes up more slack and drives a sustained increase in inflation the risk of recession induced by higher interest rates will rise.
- Trump, Tariffs and Trade. Adding to volatility during the quarter was the announcement of various tariffs by President Trump. Harkening back to an era no one wants to relive, comparisons to the 1930s and the Smoot-Hawley tariffs were pervasive.
- Tech Corrects. Technology stocks have been the big winners on Wall Street. The Tech sector was up almost 39% in 2017, the best among S&P 500 sectors. But, sentiment on technology stocks changed quickly when privacy concerns arose over the use of consumer data at Facebook.
- Earnings and Outlook. First quarter earnings season should kick off what is expected to be a robust year for corporate profits. While late in the economic cycle, we are hard pressed to be anything but constructive on equities even with the expectation that volatility will be more pronounced in the future.
