The markets rallied again in March, with the majority of equity indexes up modestly – including the S&P 500, which was up +1.9%. Further, fixed income indexes were broadly positive as well, driven by the more dovish stance that the Fed articulated at its March meeting.
The big news item of the month came when the Fed’s comments drove an inversion in the yield curve between the three-month and 10-year Treasury notes, ultimately sparking a short-term spike in volatility. An inversion of the yield curve occurs when short-term interest rates are higher than long-term rates, and this is concerning for two reasons: it implies that short-term growth will be greater than long-term growth; and historically, an inversion of the yield curve has been a leading indicator of a recession. Still, the markets shrugged it off and continued marching higher, as investors digested the news and evaluated myriad other economic data points, which continue to confirm that the U.S. economy is expanding, albeit at a moderating rate.
On the geopolitical front, trade talks between the U.S. and China remain ongoing, and negotiations are believed to be constructive, which has been supportive of the markets. In contrast, Brexit negotiations are in disarray as the clock continues ticking quickly toward the unfolding of a hard, no-deal scenario.
The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.