Equity Overview

Volatility subsided in March.  Over 21 trading days, the S&P 500 saw only 3 days in which the index closed with a daily change greater than 1% (two up, one down).

Investors continued to favor growth stocks over value stocks.  And large cap stocks performed significantly better than mid and small cap stocks, as reflected in their S&P indices:  the S&P 500, which comprises large cap stocks, gained 1.79% while the mid-cap S&P 400 and the small-cap S&P 600 both lost ground.

Macro Overview

Economic data reported in March were mixed.  Manufacturing and job growth were weak.  However, housing strengthened, unemployment dropped to 3.8%, and average hourly wages rose 3.4% year over year, the highest rate in a decade.  The final reading from the Commerce Department of GDP growth for the fourth quarter of 2018 was 2.2%, down from its previous estimate of 2.6%.  This left full-year 2018 growth at 2.9%, just shy of the administration hope for 3%.

The Fed reduced its 2019 growth estimates for the U.S. economy and indicated that further interest rate increases this year were unlikely.  It cited trade disputes, slowing growth in China and Europe, and possible spillover from Brexit (if it actually happens given the current political uncertainty in Great Britain).

Short term bond yields rose above long term yields in March, creating an inverted yield curve.  This reflects investors’ belief that the economy will slow over time, demand will weaken, and interest rates will trend lower.  A persistent inverted yield curve has typically foreshadowed a recession, but we have not reached that point yet.