Key points from AIM’s March 2019 market commentary
Market uncertainties that were previously weighing on market sentiment continue to melt away.
Optimism over trade and the end to the government shutdown provided a decent tailwind for markets throughout the month of February. Most market participants had been worried about the automatic increase in tariffs on March, had a trade deal not been reached between the U.S. and China. However, encouraging headlines around the progress made between the U.S. and China has boosted sentiment and optimism in the markets. Ultimately, the Office of the United States Trade Representative (USTR) suspended planned China tariff increases “until further notice,” lifting the 10-year U.S. Treasury yield to the highest level in a month for a brief moment.
Economic growth for the fourth quarter surprised to the upside at 2.6%, and indicates the U.S. may be somewhat insulated from the economic woes of other developed countries
Despite all the noise, the latest analysis on U.S. GDP from the Bureau of Economic Analysis showed fourth-quarter GDP at 2.6%, and was much better than expectations. Going forward, we will expect economic growth to slow, but the extent of the slowdown will depend on how much the global economy drags the U.S. down. For now, it appears like the U.S. economy remains somewhat insulated, but this will be closely monitored through the first half of 2019. Overall, we are maintaining our growth forecast for 2.30% to 2.70% for 2019.
Positive traction on trade with China, the message of patience from the Fed, and rebounding economic data following the government shutdown have lifted equities for the second straight month
Equities logged another solid monthly gain last month with major indexes rising across the board. The Dow Jones Industrial Average had the strongest performance rising by 3.67% when compared to the S&P 500® Index and the Nasdaq-100® Index.
The weight from global interest rates has kept the U.S. 10-year Treasury yield from rising despite the relatively positive economic backdrop
Additionally, the abrupt shift in monetary policy expectations from the Fed has kept the 10-year Treasury from surpassing the seven-year high of around 3.25%. That said, we still think there is potential for a modest rise in rates with the Fed possibly hiking rates one or two more times in the second half of the year and therefore, our forecast for the 10-year Treasury yield remains unchanged.
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