Chartwell Reviews

A number of notable events took place in the first quarter of 2019:  the 10th anniversary of the stock market’s recovery from the global financial crisis, the Federal Reserve halting further interest rate hikes for an undefined period, and the strong global rebound for markets from a weak 4Q19 and 2018.  Markets moved from a year where no asset class worked to  everything working in 1Q19 – global stocks and bonds, commodities, real estate.   The Federal Reserve went “on hold” in 1Q19, but volatility in investment markets did not.   Hold on – as there are many signs pointing to ongoing market volatility!

The quarter was a strong one for US equity investors, and not really much else.  Interest rates rose, resulting in enough capital depreciation to flatten out nearly all bond returns.  It certainly looks like we are at peak earnings growth for this cycle – the bottom of the 9th inning for the stock market or are we in extra innings?  There appears to be more downside risk in investment markets than upside potential; see our Back Page Perspectives for more on that issue.   Rather than swinging for the fences, we think it is a good time to reduce risk exposures and increase liquidity – not completely collapse risk assets, but being at the conservative end of policy ranges.

Early 2018 market returns were feast or famine as: a for-the records- January was followed by a market sell-off in February (and our first correction since February of 2016), ending with a dismal March.  In fixed income markets, there was very little black ink to be found:  leveraged loans in the US, unhedged non-US bonds and local currency emerging market bonds posted positive results.  In short, volatility returned with a vengeance.