As we sit here today, the government shutdown has reached its 32^nd day. Prime Minister Theresa May’s plan to negotiate a withdrawal from the European Union was met with memorable defeat. And China’s economy is showing evidence of deceleration against the backdrop of tariffs. Yet, since the beginning of the year, equities have surged, quieting concerns coming out of a very difficult fourth quarter that the bull market had reached its end. The S&P 500 has gained +6.6% since the beginning of 2019, while small cap stocks have fared even better, up +10%. Outside of the U.S., stocks have generated gains as well, with both the MSCI EAFE and MSCI Emerging Markets indices up over +5% year-to-date.

So what is driving the gains? As we indicated in our previous communications, we believe that the reaction of the equity markets to the uncertainty around the trade situation with China along with fears of an aggressive move towards tightening by the Federal Reserve was overdone, given the current state of the U.S. economy. While we acknowledge the deceleration globally, we believe that the recent move higher for stocks reflects the expectation that the U.S. economy will not sink into a recession this year. In addition, earnings season has begun in earnest, and while only about 10% of large U.S. companies have reported, the results have been better than expected, which has provided some comfort, particularly for investors in those companies less insulated to changes in Chinese supply and demand. Finally, the messaging from the Federal Reserve has been interpreted as modestly more dovish, with an emphasis on economic data and a move away from a prescriptive path.

With that said, we reiterate our belief that the pace of growth in both the global economy, as well as corporate earnings, will continue to slow this year and into 2020. As such, we anticipate migrating to a more conservative posture as we move forward throughout the year; meaningful gains from the current levels in the equity markets could prompt earlier action in that vein. Our focus remains on helping you to reach your desired goals, and we encourage you to reach out to your Boston Private Wealth Advisor with concerns or questions.