Stocks fell slightly in the first quarter, losing 0.8% and ending the S&P 500’s nine quarter win streak. The return of volatility was the big story of the quarter, when the index suffered its first 10% correction since early 2016. LPL Chief Investment Strategist John Lynch noted, “Just because stocks ended the quarter with losses does not mean that market fundamentals necessarily deteriorated. While risks associated with protectionist U.S. trade policy should be acknowledged, we continue to expect economic growth to accelerate this year, in large part due to the effects of the new tax law; which could give earnings a significant boost. We continue to expect double-digit returns for the S&P 500 for the year.*”
First quarter weakness was driven by several factors. Chief among them were: Fed rate hike fears, which were sparked by evidence of wage pressures and the change in leadership at the central bank; and escalating trade tensions with China. The unwinding of the short volatility trade, softening economic data and late-quarter weakness in the technology sector also played a role. Winners in the quarter included: growth, small caps, technology, consumer discretionary, and emerging markets. Our equity market recap of the first quarter is due out later today in our latest Weekly Market Commentary.
*LPL Research’s S&P 500 Index total return forecast of 8–10% (including dividends), is supported by a largely stable price-to-earnings ratio (PE) of 19 and LPL Research’s earnings growth forecast of 8–10%. Earnings gains are supported by LPL Research’s expectations of better economic growth, with potential added benefit from lower corporate tax rates.
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Indexes are unmanaged and cannot be invested into directly.
Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Russell 3000 Growth Index is an unmanaged index comprised of those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Value Index measures the performance of those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
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