The year got off to a good start on the heels of a strong earnings season in which 77% of S&P 500 firms reported higher than expected sales. While the economy continued to grow, fears of inflation, growth peaking, and potential trade disputes startled the market enough to give up its January gains and usher in a new period of volatility. The first quarter logged 22 days in which the S&P 500 gained or lost 1% or more, compared to just 8 such days in all of 2017.

The S&P 500 ended the quarter with a slight loss of -0.8%. Leading sectors included Technology
(+3.5%) and Consumer Discretionary (+3.1%), while Consumer Staples (-7.1%) fell the most. Equally volatile, indices for developed international markets fell -1.5%, while emerging markets rose +1.4%.

Exiting the Expressway

After cruising in the express lane for much of 2017, the U.S. economy appears to be taking its foot off the gas as it prepares to merge back into traffic. This projected slowdown in economic growth is already contributing to a bumpy ride for the stock market, which sees some brake tapping, congestion, and “Be Prepared for Delays” flashing ahead.

While we don’t know exactly how rough the road will get, we constantly map and measure the economic data, the key component of our data-driven process and in turn, our investment posture. Currently, our model doesn’t indicate recessionary conditions, but it does project the annual pace of domestic economic growth slowing into year end.

Additionally, an escalation in trade tariff rhetoric between the U.S. and China is concerning. Markets had cheered the passage of the Tax Cuts & Jobs Act and reduction in regulations, but a trade war between the world’s two largest economies would be a massive headwind (pothole?) for global growth.

Outlook

Volatility is back, economic growth appears to be peaking, and inflation is ticking higher. Both our economic forecast and data-driven risk model are signaling caution. While we see no signs of recession, we do expect economic growth to slow presenting a challenging environment for stocks.

How Can We Help?

At GGM, aligning your investments with the prevailing economic environment is just one of the ways we strive to add value to your portfolio. If you are concerned about whether your investments are primed for the current market and allocated to meet your objectives, we recommend our complimentary portfolio checkup. Contact us today!