In the first days of March the President tweeted that he intends to impose steep tariffs on steel and aluminum to protect American interests. That sent the market reeling and a twitter storm ensued. Investors fled the market fearing a trade war only to come back to the market when the administration softened the rhetoric. The uncertainty generated by concerns of global retaliation and all-out trade war caused extreme market volatility during the month of March.
A week after the President’s announcement of his planned trade tariffs his chief economic advisor, Gary Cohn, resigned. The market immediately dropped on the news. Then one week later the President announced that his new economic advisor would be Larry Kudlow. Kudlow made some comments about not rushing to judgment concerning trade wars and they might never happen. The market rallied.
The market gave triple digit swings in both directions all month. On March 23rd the Dow tested the February lows again. This is not unusual after the drop in the first week of February and many analysts expected it could happen. The important thing to watch when the index tests a previous low is whether buyers come back to the market at that point. In March they did. The month ended with the index slightly off the low so for the time being it has held the line.
Coupled with the trade war talks and a change in economic advisors, there was continued concern over inflation and interest rates. As anticipated the Federal Reserve Board raised its target Fed Funds rate another 0.25% at its March meeting. The new chairman, Jerome Powell, sounded very much like his predecessor as he talked about a measured pace saying “we are trying to take the middle ground.” The Board knows it needs a pace that does not squelch economic growth which is the best in years, all the while getting rates back to a more normal level. He left the door open to an adjustment up or down depending upon economic numbers in the coming months. Investors were relieved to hear the consensus of the committee is only two more increases this year.
The first quarter ended on an up note with the Dow closing 255 points higher on March 29th than the previous trading day, but overall it was the first losing quarter since 2015.
While this volatility is unsettling to investors we were way overdue for a correction. It has brought stock prices back to more reasonable levels and technically the long term trend is still positive. With a positive outlook be prepared for more volatility along the way as investors deal with the uncertainty that abounds. Economic numbers look strong which is encouraging for the market. April is earnings month and we will be watching to see how corporate America did in the first quarter of 2018.