Doom and gloom gave way to sunny skies for investors as the first quarter stock market gains of 2019 have erased the losses of the closing months of 2018. To call what we’ve just seen a rebound is an understatement. January to March 2019 was the best quarter in nearly a decade for U.S. stocks. And that’s saying something. The S&P 500 was up 13.1%, the Dow Jones Industrial Average rose 11.2%, and the Nasdaq gained 16.5%, according to Yahoo Finance.

So what happened?

What goes down, must come up

Coming into 2019, the bar was low. At the end of December 2018, the S&P 500 was down 6.2%, the Dow Jones fell 5.6% and the Nasdaq dropped 4%. Investors realized the sky is not falling, which was the story playing out in the media at the end of 2018. But that’s just part of the picture.

Central banks kept interest rates low

In the first week of January 2019, the Federal Reserve in the U.S. indicated it would not be raising interest rates as it was already close to a neutral rate. The Bank of Canada and central banks around the world followed the U.S. lead. At the same time, with domestic economic growth expected to slow to 6.3%, China rolled out fiscal stimulus measures that seem to be working as its manufacturing industry is growing again.

Positive China-U.S. trade talks

President Trump did not raise tariffs on goods from China on March 1, 2019 which was the previous deadline to complete trade negotiations between the two nations. Both sides appear to be close to a deal and that positive development has made its way into the market. This is especially evident when you look at tech stocks, which do a lot of business in China, and have been behind much of the growth in the stock markets.

Slower growth, but no recession

The talk at the end of last year, at least among media pundits, was all about impending recession. While growth has slowed, it hasn’t stopped. U.S. and Canadian GDP is expected to grow about 2% in 2019, this compares to about 3.2% for the global economy. In December 2018, the U.S. added 312,000 jobs, besting all forecasts. In March 2019, 196,000 jobs were added to the U.S. economy. In Canada, employment was up 22,000 in the month of December. Employment for the first quarter of 2019 was up by 116,000 jobs. In March 2019, employment dipped slightly by 7,200 jobs but the jobless rate remained unchanged. All those negative pundits are now avoiding the word ‘recession’ and talking up the positive. As an investment advisor, my job is to help people see past all the noise and focus on what’s real.

Energy is still a story–only now, it’s a good news story

At the time of writing, oil was back up to about US$61 per barrel. It had a tremendous start to the year for a few reasons: the realization that the world is still growing (see above); OPEC continued production cuts enabling demand to grow and prices to rise; in Canada, similar cuts has led to the differential between the cost of Western Canadian Select and its global competitors has closed significantly, helping the Canadian markets.

No tariff news is good news

Uncertainty around the Canada-United States-Mexico Agreement contributed to the Bank of Canada keeping interest rates low–a good thing for the markets.

What can investors expect as we head into the second quarter? Unless central banks raise interest rates, which is not likely, the best indicator of what’s to come will be found in corporate earnings reports and whatever materializes from China-U.S. trade negotiations.

See you on the other side.

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My approach to investing is straightforward. I study the markets, global economies and what’s happening within industries to be in a position to best help my clients find good quality investments that will help them meet their goals. I build custom portfolios for each client. I welcome you to call me at 416-332-3863 or email me at allan@allansmall.com.

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