Another March forward for the markets: Can it last?

Mike Loewengart, Vice President of Investment Strategy

E*TRADE Capital Management


March has historically put a spring in the step of investors, and the past month was no exception—with some caveats. March topped off the best quarter in a decade for the S&P 500®, but the good news was tempered with a twinge of apprehension after the Treasury yield curve inverted late in the month. Inverted yield curves have historically been early harbingers of a recession, and although investors were briefly rattled, the market disruption proved short-lived.

US equities

Large-cap stocks again paced equity performance, with the S&P 500 Index up 1.94% in March, despite some volatility late in the month.

March 2019 US equity performance

FactSet Research Systems

In a display of how disjointed the markets have become, both growth and defensive stocks were among the best-performing sectors in March. Real estate and information technology led the pack, while dividend-paying utilities, aided by an increasingly dovish Fed and the prospect of lower Treasury yields, were not far behind. In total, nine of 11 sectors have posted double-digit returns year-to-date—a remarkable feat given myriad headline risks.1

March 2019 sector performance

FactSet Research Systems

International equities

International stocks generated modest gains, with emerging markets only marginally outperforming developed markets. In Europe, investors seemed unfazed by Britain’s inability to come to terms on a coordinated exit from the European Union, while stocks in Asia vacillated on inconsistent reports of a potential US-China trade deal.

After a fast start to the year, emerging markets were weighed down by poor performance in Latin America, although crude oil supply cuts and US sanctions on Iran and Venezuela boosted many energy producers. Despite inconsistent returns of late, emerging markets are up nearly 10% on the year, underscoring the strength of January’s rally.1

March 2019 international equity performance

FactSet Research Systems

Fixed income

Even against a bullish backdrop, the fixed income markets held their ground in March. As they have all year, longer-dated Treasuries set the pace—although performance was strong across the board. For the month, the Bloomberg Barclays US Aggregate Bond Index gained nearly 2%. Year-to-date, all fixed income segments have posted positive returns.

The big-ticket story for bond investors was the inverted yield curve. While the spread between 2- and 5-year yields has been negative for some time, it wasn’t until March 22 that 10-year Treasury yields dipped below those of 3-month T-bills. To many market watchers, this was a “real” inversion in the curve. Perhaps because the yield curve has been flat for so long, investors greeted the news like a 24-hour bug and quickly got back to business following a brief bout of volatility.

March 2019 Treasury yield curve

FactSet Research Systems

The bottom line

With economic growth rates moderating in the low 2% range, investors may be looking to temper their expectations. Here are some themes to keep in mind:

•  Interest rates—down or steady? Because inverted yield curves have historically been reliable predictors of a recession, prognosticators now see an increased likelihood of rate cuts this year. Fed funds futures are pivoting in that direction, although Federal Reserve Chairman Jerome Powell recently insisted, “We don’t see data coming in that suggests that we should move in either direction.”2 Translation: Barring unforeseen economic disruptions, the Fed is likely to stay on the sidelines for now, but last year’s rate hikes at least allowed Powell to restock his monetary toolbox.

•  Diversification of systematic risk: The markets are slighlty schizophrenic right now, with little in the way of discernible direction; that makes a great case for diversification, including high-quality fixed income exposure. A diversified 60/40 equities/fixed income portfolio has generated an 8.5% return year-to-date, underscoring its ability to participate in market gains while helping to buffer against volatility.1

•  Don’t forget international: With leading and coincident US economic indicators—including industrial production, job growth, and especially housing—showing weakness, investors may wish to assess their international allocation. Global growth has been uneven, but international valuations remain of interest to many market participants.

Spring has sprung. Let’s just hope it hasn’t sprung a market leak in the process. With hopes for a US-China trade deal, Brexit, and an inverted yield curve all vying for investors’ attention, the coming months should be interesting. Stay tuned.

Thanks for reading, and we’ll talk to you again next month.

Mike Loewengart
Vice President, Investment Strategy, E*TRADE Capital Management, LLC

Mike Loewengart is the Vice President of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. Prior to joining E*TRADE in 2007, Mike was the Director of Investment Management for a large multinational asset management company, where he oversaw corporate pension plan assets. Early in his career, Mike was a research analyst focusing on investment manager due diligence for the consulting divisions of several high-profile investment firms. Mike holds series 7, 24, and 66 designations, as well as the Chartered Alternative Investment Analyst (CAIA) designation. He is a graduate of Middlebury College with a degree in economics.

Andrew Cohen, CFA
Director, Investment Strategy, E*TRADE Capital Management, LLC

Andrew Cohen is a Director of Investment Strategy for E*TRADE Capital Management, LLC. Prior to joining E*TRADE, Andrew was the Director of Investments and Operations for a large Registered Investment Advisor, where his responsibilities included investment manager research, asset allocation, and portfolio construction. Previously, he was a Senior Research Analyst and Team Leader for a leading wealth management platform. He is a CFA® charterholder and a member of both the New York Society of Security Analysts and CFA Institute. He is a graduate of Virginia Tech with a BS in finance.

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1. FactSet Research Systems, April 1, 2019

2. Transcript of Chair Powell’s Press Conference Opening Remarks, Board of Governors of the Federal Reserve System, March 20, 2019,

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