April 18, 2018

Financial Markets

  • Equity markets rallied in January. Volatility returned in February and continued through March ignited by an inflation scare and fueled by technology (tech) stock scandals and intensifying protectionist trade actions. The emerging markets index was the top performer and the only major equity index to post a positive return for the quarter. An index of European stocks slid to a one-year low in March.
  • The return of equity market volatility is shown by the fact that during the quarter the S&P 500 index moved 2% either up or down on 6 trading days compared to 0 days in 2017 with a move of that magnitude.
  • Bond returns were mostly negative as yields rose on expectations for tighter monetary policy in the future.
  • Industrial metals prices dropped from recent peaks on tariff announcements. Crude oil prices rose to the highest levels since late 2014. Gold moved higher on safe haven trading.

Overview of the Economy

  • Earnings reports were good with over 75% of S&P 500 companies beating revenue and earnings forecasts.
  • The economic expansion in the U.S. continues to be solid as shown by another increase in the index of leading economic indicators. Some data from Europe weakened in the quarter, such as exports. Other indicators continued to improve, such as the euro area unemployment rate dropping to the lowest level since 2008.

Notable Events

  • The U.S. Federal Reserve Open Market Committee (FOMC) raised the federal funds rate target by 0.25% and indicated plans to continue its gradual pace of interest rate hikes.
  • The U.S. imposed tariffs on steel, aluminum, and numerous Chinese products. China retaliated with tariffs on $3 billion of U.S. imports.


For an in-depth analysis of the quarter, please download the PDF.