Quarterly Digest: 1Q'19

Quarterly Digest: 1Q'19

Despite the higher oils prices and turmoil in the EU regarding the Brexit decisions, US Equities skyrocketed in this first quarter of 2019. 

S&P500 had the best overall quarterly gain since 2009 and the best 1st Quarter gain since 1988 presenting a +14% (which is usually the weakest of the year) closing at 2,834.40. The  Nasdaq was +17.4% (7,729.32 points) and the DOW Industrials Index closed with a +12.4% (25,928.68 points).

But the question is: can we expect similarly impressive results in the second quarter of the year?

Specialists believe that the market will have to work hard to outperform analysts expectations for the corporate earnings. There are still uncertainties regarding a Chinese American trade deal and some cautious is recommended.

The tech sector is still expected to present continued gains and should perform decently. The energy sector is on the same path.

As seen before, we live in an era of abundant liquidity on the money supply. In the 90s when Equities performed well, we could expect the Fixed Income class to perform poorly and vice versa. They had negative correlation between those asset classes and that was something good for the markets. Now, what we see is that they both are performing in the same direction.

We had another quarter where Bonds and Fixed Income Assets also performed well. Treasuries and Corporate Bonds increased in pricing as the market faced some deterioration in the economic conditions. Yields were compressed in this first quarter, but we shouldn’t expect the same movement for the second quarter. The idea is to diminish the risks. I personally believe that we should be on the lower end on the maturities by diminishing the duration of your portfolio and focusing on higher credit quality papers.

 

Optimism with the trade agreements between the US and China was certainly reflected in the market. Long time disputes between the two global titans have been back to discussion: from cyber hacking, to IP theft and also the stealing of intellectual property in the tech sector,  both countries are already on the 3rd round of negotiations as the American Trade Secretary is constantly visiting China and their Premier is also expected to come to Washington next month. The pressure from the US is back to settle the disputes and it looks like the Chinese are willing to discuss, which is a good sign. If they will keep their part on the promise, that’s another story, but at least some signs of cooperation are now showing evidence. And that optimism is contagious. US is now passing in front of Brazil and closed agreements with China to buy soybeans from them. Thanks to the pathetic performance of president Bolsonaro in diplomatic relations with China, the Chinese government moved quickly to buy Brazilian’s main commodity (soybeans) from the US.

 

 

On the tech scene, China offered cloud computing and data services greater access and passed laws that should enforce greater protection of the technology and intellectual property of foreign companies doing business in China.

 

Still in the US, the monetary policy also guided the market that it should not raise rates for the rest of this year. The labor market is showing strength and the markets should continue to grow. Inflation target is also in order and the good signs are all there, leaving the Fed patient with the healthy economic data.

Sector Performance was as follows:

An impressive quarter with positive returns in all sectors, led by Technology stocks.

 

 

 

 

 

 

IPO: one more tech unicorn came to Wall Street this quarter, this time Lyft was the one to shine its $20 Bn Valuation (Uber’s main competitor for the past 4 years), with the stock price of $78.3/share. The greatest highlight was the fact that Lyft gave its own drivers fleet the chance to buy the stocks in the IPO before the market, about 1 million drivers were benefited from the priority. Still not a complete decentralised move, but definitely some support for those that made the company reach such a successful valuation. The market liked the “distribution of wealth”, but let’s not forget that in the US the whole population has more access to Trading stocks than other countries. 

 

In the UK things got sour. Brexit deal was rejected as PM Theresa May’s government failed for the 3rd time to seal a deal with the EU. The House of Commons rejected: No Deal, it rejected: No Brexit and now it has rejected all the variations of the deal on the table. 

 

European stocks are not on the same pace as in America, but still had a significant quarter in this first quarter.

 

 

In the crypto space, we had a very strong start of the 2nd Quarter of 2019, check our cryptoasset performance news in our next blog post.

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Juliana Passos

08.04.2019

Capital Markets