Investment Insights: April fools rush in
This weekly report presents insights from our Global Investment Management team.
Investors seemed to shrug off the negative sentiment experienced last week as stock gauges rose at the end of the quarter and into April.
The S&P 500 rose a whopping 13.65% in the first quarter of 2019, and seems to be starting off the second quarter in good spirits. Similarly, global stocks gained 12.33% during the period, according to MSCI data. Market sentiment seems almost bipolar as markets swing on relatively insignificant data releases and investors search for the next catalyst to cause a palpable trend in markets.
A disappointing Purchasing Managers’ Index number out of Germany – Europe’s manufacturing powerhouse – along with some negative economic releases domestically added to the list of woes. However, renewed hopes for an end to the U.S.-China trade dispute and strong manufacturing data out of both the U.S. and China helped turn investors’ frowns upside down.
The ride-hailing service, Lyft, set its initial public offering last week and was able to raise $2 billion, bringing its company valuation to over $24 billion during preliminary trading. According to Bloomberg, roughly 300 offerings have been announced over the last 12 months with a total value of almost $45 billion.
Corporations may be looking for capital via the markets as expectations fall for organic growth. It’s still pretty early in the earnings cycle, but of the 20 or so companies out of the S&P 500 that have reported earnings, average earnings growth is at -9.85%. Still, guidance had been adjusted down over the last several months, and these same companies are beating earnings estimates by 4.28%. While beating the average expectations of Wall Street analysts is something to applaud, a larger than expected drop in growth could turn investors sour even after such a stellar 2018.
After a significant climb in prices, yields seem to be trending back upward. The 10-year Treasury yield, dropped to 2.37% and ended the quarter just above the 2.40% mark. However, there has already been some bullish yield behavior with the 10-year yield jumping to 2.50% as a little April Fools’ prank for some investors. The shorter part of the Treasury yield curve is still inverted, but the 10-year yield has risen enough to no longer be inverted. The first quarter was remarkable for gains in the stock markets, and bond markets didn’t do too bad either. The Barclays U.S. Universal Bond Index, which attempts to measure the broad U.S. bond market, gained 3.32% in the first quarter of 2019. Data from Bloomberg and Barclays showed municipal bonds following close behind at 2.90%, while high yield bonds jumped 7.26%.
Our team has continued to enjoy beneficial positioning in the current investment environment, though we continue to be wary of how long such notable gains can last. Financial market fundamentals remain fairly positive in our view, but those may be overshadowed in the future by potential negative factors, particularly from geopolitics. Along with other investors, we are watching the markets closely for signs of a catalyst, but continue to review changes to our strategies that we believe would benefit our clients if volatility was to rear its head again.
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