March 2019 Monthly Market Review
Equities continued to post broad gains in March as the Fed’s dovish tilt became more pronounced with guidance suggesting no further hikes in 2019. Equity investors embraced the potential end to the rate hiking cycle and interest rates fell across the U.S yield curve. The S&P 500 rose by 1.9% for the month. Following the Index’s 13.5% decline in the fourth quarter, it rebounded with a gain of 13.6% in the first quarter of 2019. This represented the best quarterly return for the S&P 500 since the third quarter of 2009 during the early stages of the current bull market.
The initial March 29th deadline for Brexit passed but the U.K. remains in the European Union (EU). Politicians were unable to agree on the terms of the U.K.’s departure and EU leaders agreed to postpone the Brexit date to April 12th. Persistent uncertainty has taken a toll on the British pound. U.K. equities, as measured by the FTSE 100, were positive in local terms; however, it is important to note the dispersion in the British equity market. Larger, globally oriented U.K. companies have generally fared better as they have been aided by weakness in the currency, while domestically focused names (as measured by the FTSE Local U.K. Index) came under greater pressure.
Optimism in the equity markets was countered by the continued flattening of the yield curve in the U.S. The spread between the yields on the 2-year and 10-year Treasuries fell to 13 bps from 18 bps at the end of 2018. While global manufacturing data showed a slowdown in activity, Fed policy also influenced yields and the shape of the curve. The Fed’s dovish pivot was confirmed in March. The Federal Open Market Committee (FOMC) held rates steady as expected, but changed its forward guidance. New projections show no rate hikes in 2019, which is two fewer than the December guidance. Furthermore, the Fed announced the balance sheet normalization process will conclude at the end of September.
Not only was the yield curve flat, an inversion occurred on March 22nd when the yield on longer-term Treasuries fell below the yield on three-month Treasuries. Yield curve inversions have been a fairly reliable predictor of economic recessions in the past The time lag between an inversion and an actual recession has typically ranged from 18–24 months.
Real asset categories posted strong returns during March, led by developed market REITs. In addition to the positive impact on real estate from lower interest rates, REITs also continued to benefit from strong earnings growth, positive fundamentals, and attractive valuations compared to private real estate. Elsewhere in real assets, crude prices (WTI) shrugged off concerns about slowing growth and gained 5.1%, ending March at $60 per barrel. U.S. sanctions on Iran and Venezuela and production cuts by Organization of the Petroleum Exporting Countries and Russia helped contain supply during the month and quarter. In addition, reported progress toward a resolution in the Chinese and U.S. trade war as well the Federal Reserve’s more dovish monetary stance improved the market’s outlook for Chinese and global demand.