Markets fell last week as investors digested lukewarm economic data and considered future economic growth prospects. However, stocks bounced back on Friday and trimmed their losses. For the week, the S&P 500 lost 0.44%, the Dow slid 0.31%, and the NASDAQ dropped 1.70%.1
Last week, investors got their first look at Q1 economic growth. The advance estimate of Gross Domestic Product showed that the economy basically ground to a halt in the first quarter, growing just 0.2%. Though this early report is based on incomplete data, the picture so far shows that exports plunged, businesses slashed spending, and consumers kept their pocketbooks closed.2
While some of the weakness is due to a cold winter and a West Coast port strike, the effects of a strong dollar and weak global demand may linger into the second quarter. So far, we know that consumer spending edged upward in March and that wages increased in the first quarter, giving Americans more money to spend.3
The Federal Reserve’s policy-setting Open Market Committee also met last week to take stock of the economy and discuss future interest rate policy. As expected, the central bank made no moves to raise rates and emphasized that any future rate hikes will be based on a careful analysis of the economic environment. Bottom line: It’s unlikely that rate hikes will come before the fall.4
Can markets sustain the rally amid sputtering economic growth? We can’t know for sure, but we are keeping a close eye on factors like business investment, corporate expectations, and future economic growth projections to guide our decision-making process. While fundamentals show that the economy is still growing, obstacles like weak business investment, cautious spending, and global growth concerns may lead to a market pullback in the coming weeks and months.
Since the bottom of the last bear market in 2009, the S&P 500 has returned over 200%.5 Though we’ve had some bumps in the road, we haven’t experienced a serious 10%+ correction since 2011.6 Some analysts believe that we are overdue for pullback while others have a brighter outlook on market performance.7 Since history never repeats itself exactly, we don’t believe it’s useful to worry about what might be around the corner. Instead, we focus on creating personalized strategies that pursue our clients’ goals and then make prudent adjustments as conditions warrant.
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