By PAUL TAGHIBAGI | Special to the Palisadian-Post
The Quarter in Brief
Stocks rallied in January, corrected in February and slumped in March as volatility and economic policy changes took some of the enthusiasm out of the market.
The Trump administration announced tariffs on foreign steel, aluminum and assorted products from China; China soon said that it would reciprocate with excise taxes of its own.
The Federal Reserve adjusted the federal funds rate upward and welcomed a new chair; the White House appointed a new chief economic advisor. An orderly process was outlined for Brexit.
The Nasdaq Composite advanced for the first quarter, but the Dow 30 and S&P 500 did not; most major Asian and European benchmarks also retreated.
Among commodities, bitcoin declined notably, while oil and gold improved. The placid market climate of 2017 vanished, giving way to trading sessions marked by significant ups and downs.
Domestic Economic Health
A protectionist trade strategy emerged from the nation’s capital in March. The Trump administration declared that a 25 percent tariff would be instituted on imported steel and a 10 percent tariff on imported aluminum.
Some countries were given short-term exemptions from these excise taxes: Argentina, Australia, Brazil, Canada, Mexico, South Korea and members of the European Union.
Additionally, up to $60 billion in Chinese imports would soon face excise taxes. China retaliated at the end of the quarter, imposing import charges of either 15 or 25 percent on 128 U.S. products, including pork and fruits.
Elsewhere in Washington, the Janet Yellen era gave way to the Jerome Powell era at the Federal Reserve. Weeks after Powell took over as Fed chair, the central bank made its first interest rate adjustment of the year, a 0.25 percent hike.
The consensus opinion of its policymakers projected two more hikes this year, three in 2019 and two in 2020.
World Markets
Next to the Nasdaq Composite, Hong Kong’s Hang Seng had the best Q1 of any notable stock benchmark: It rose 0.58 percent in the first three months of 2018.
The FTSE 100 took the hardest fall: The United Kingdom’s marquee index plunged 8.21 percent. Germany’s DAX tumbled 6.64 percent, and the Nikkei 225 had a quarter almost as poor, dropping 5.76 percent.
Canada’s TSX Composite lost 5.19 percent in Q1, and Australia’s All Ordinaries retreated 4.84 percent. In China, the Shanghai Composite finished the quarter 4.18 percent lower. France’s CAC 40 lost 3.43 percent, and India’s BSE Sensex slumped 3.20 percent.
Commodities Markets
S&P 500 VIX futures (which measures volatility) led the commodities pack in the quarter, rising 41.26 percent.
Other notable commodity and currency gains and losses in Q1: lumber, +18.82 percent; the Mexican peso, +10.17 percent; WTI crude, +7.83 percent; silver, -5.12 percent; coffee, -8.09 percent; and gold, +0.81 percent.
Real Estate
In the first quarter, home loans certainly became more expensive.
On March 29, Freddie Mac’s Primary Mortgage Market Survey showed the interest rate on a conventional mortgage at 4.44 percent, up from 3.99 percent on Dec. 28, 2017.
Rates also climbed for 15-year FRMs and 5/1-year ARMs. Average interest on the 15-year fixed rose from 3.44 to 3.90 percent in the same time frame, and from 3.47 to 3.66 percent for the five-year adjustable-rate home loan.
Looking Back … Looking Forward
As a tough quarter for stocks becomes history, signs of a trade war have surfaced. What could the second quarter hold?
All three major indices sold off significantly as Q2 began. Investors hope that the March jobs report and the start of a new earnings season will restore some optimism to the market.
Housing and retail sales aside, fundamental economic indicators have looked good for the most part. The anticipation (and results) of this coming earnings season could take investors’ minds off recent headwinds, but a continuation of the marked volatility we witnessed in the first quarter would not be a surprise.
Paul Taghibagi may be reached at 310-712-2323, pt@seia.com or seia.com/bio/paul-taghibagi.
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