Global Equity Review

April 12, 2019

The market’s mood shifted dramatically as the calendar turned, with global stocks rebounding in the first quarter of 2019 from a very difficult fourth quarter of 2018. Double-digit declines in US and international markets in 4Q were followed by double-digit gains in 1Q. Why the sudden reversal? The fourth quarter had been marked by fears of an economic slowdown. The signals of that possible slowdown were many: higher interest rates had led to weakness in interest-rate‑sensitive sectors like housing and autos. Trade tensions on multiple fronts threatened to halt the global flow of goods. Corporate profits, having leapt ahead in 2018 thanks to lower taxes, faced headwinds in 2019 of higher interest costs and negative currency translation on foreign income.

As 2019 began, the Fed, after hiking rates 4 times in 2018, turned dovish. In interviews and testimony, Chairman Jerome Powell and other board members assured markets that the Fed would pause on interest rates and stop shrinking its giant portfolio of bonds. Companies’ 2019 outlooks reassured markets that profit headwinds were manageable. Trade remains the final wildcard in the global economic outlook, but a slow dribble of news leaks in the quarter suggested that cooler heads could avoid an all-out trade war, whether with China, Europe, or even within North America.