First Quarter 2018 Market Snapshot

Download (PDF, 137KB)

First Quarter 2018: Welcome to the Job, Mr. Powell

After an unusually quiet 2017, market volatility returned in the first quarter. Strong labor and wage growth, tech stock worries, and trade war fears helped bounce equity markets up and down before ending the quarter slightly below where they started the year.

Domestically, investors fretted over a variety of new information. Increased deficit spending and rising wages raised inflation fears that sparked a selloff in Treasurys and the stock market at the end of January and into early February. In the broad-based selloff, markets fell approximately 10% from their January highs, ending a 15-month winning streak for the S&P 500. In March, President Trump raised fears of a possible trade war by unexpectedly announcing stiff tariffs on imports of steel and aluminum, making good on a key campaign promise to be tough on trade. In wake of the announcement, Gary Cohn, Trump’s top economic advisor, resigned.

Markets declined again in March, which was an especially difficult month for technology stocks. In March, it was revealed that the personal information of 50 million Facebook users was compromised without their consent, and President Trump targeted Amazon.com specifically for regulatory policy changes. Even still, growth stocks outperformed value for another quarter – the S&P 500 Growth Index returned 1.9% and the S&P 500 Value Index returned -3.6%. Smaller capitalization names also outperformed larger ones as the Russell 2000 finished the quarter down -0.1% versus -0.8% for the S&P 500. Internationally, a weaker US dollar helped support international indices as emerging markets rose 1.3%.

The yield curve flattened as new Federal Reserve Chair Jerome Powell continued with the policy normalization plan established by former Chair Janet Yellen and raised rates for the 6th time since the global financial crisis. Yields on the short-end of the curve have risen considerably since 2016, with the 2-year Treasury now yielding its highest value since August 2008. Rising rates and widening spreads pushed almost all fixed income indices lower for the quarter.