After a dismal and brutal fourth quarter that erased US stock market gains of 2018, the stock market rebounded strongly in Q1: the Dow finished up 13.1% vs it’s -5.6% loss for 2018, and Nasdaq gained 16.5% vs. – 3.9% last year.

Fourth quarter worries about an imminent recession and a collapse in corporate earnings drove the market to a valuation P/E low of 13.5x as investors fled in panic. At year-end, stocks were discounting the worst possible outcomes. But in January, investors considered the implications of what the lowest unemployment numbers in 50 years, consumer and business confidence at 30 year highs, moderate inflation and encouraging signs of a China trade deal could mean to continued economic growth, and began snapping up all manner of oversold stocks, with
technology and industrials leading the way.

The Fed’s radical shift from tightening to potential easing, first in December, and then in March, was the key underpinning to the market’s ascent, with P/E’s expanding to 16.8x over the first quarter, retracing the losses of the fourth quarter and bringing the market to within 1% of its all-time high. Investors decided to look through the earnings slowdown, now discounted in stocks.

With the US economy operating at full capacity, economic growth and consumer activity solid for businesses of all sizes, and central banks around the world easing, can the market move higher? Or are stocks now fully discounting a soft landing? Given the strong move upward, gains of this magnitude are unlikely going forward, and one-two corrections a year are to be expected in any event. But while upside may be limited, earnings for Q1 may be too low as may GDP given recent economic reports, and the amount of cash still on the sidelines could limit the downside, too. Net net, stay invested in US equities, and buy favored names on any dislocations. As always, any and all questions, comments and observations are welcome, at any time. We monitor economic conditions closely for signs of impending change that could warrant portfolio adjustments but for now, continue to stay the course. As I appear on CNBC regularly, commenting on stocks and the markets, you can also check my LinkedIn profile for updates on my thinking. Also attached is my previous quarterly newsletter in case you missed it in January.

Best,
Barb
Barbara Doran
Managing Member
bdoran@bd8cap.com
BD8 Capital Partners LLC
150 E 52nd Street, Floor 3|New York|10022
Cell: 917-733-7644
Office: 646-885-5682
Fax: 917-580-6882

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