by Connor Darrell
CFA, Assistant Vice President – Head of Investments U.S.
equities (as measured by the S&P 500) posted another week of gains and
closed out the strongest quarter since 2009 on a positive note. Investor
sentiment toward the end of the week appeared to be bolstered by stronger than
expected new home sales, which helped to calm fears about a weakening housing
sector. The bounce back in the housing market may have been driven by the
significant decrease in bond yields to start the year, which have helped push
mortgage rates down well below their 2018 highs.
The sharp drop in bond yields over the course of Q1 has been largely driven by softening global economic growth and a shift in rhetoric from the Federal Reserve, which is no longer anticipating any more rate hikes during 2019. However, at some point the market’s primary focus will shift away from Fed Policy and Q1 earnings season will be one potential alternative. As companies begin reporting Q1 earnings, which are expected to be quite a bit weaker than in recent quarters, the market will need to grapple with whether the recent rally can be sustained despite weaker corporate profits. The extent to which corporate earnings exceed or miss these lower expectations may go a long way toward guiding market performance over the next few months.