Central Banks Ease Up.

News from central banks spurred most markets in March. Read more to find out what happened and what it may mean for you.

What happened.

March was mostly a good month in the markets.  Large-cap domestic stocks (S&P 500 Index) and bonds (Bloomberg Barclays US Aggregate Index) saw the highest returns, up 1.94% and 1.92% respectively.  International stocks, both developed- and emerging-market (MSCI EAFE and Emerging Markets indexes), were up for the month by 0.63% and 0.84%.  However, domestic small-cap stocks took a hit, down 3.33%.  It was a comparatively low-volatility month, with the S&P 500 up or down by more than 1% on only three days.

The first quarter of 2019 was a positive one.  In contrast to the difficult fourth quarter of 2018, all major categories of stocks were up very strongly.  US large caps rose 13.65%, small caps 11.61%, developed-market international 9.98%, and emerging-market international 9.92%.  Bonds rose by 2.94%.

Why it happened.

News about the economy—domestic and international—caused concerns for market participants in March.  Early in the month, lackluster US job-creation numbers were reported, and it was reported that the 2018 trade deficit rose to its largest in a decade.  Later in the month, falling manufacturing in the eurozone, Japan, and the US added to the worries.

Why, then, did most classes of stocks rise?  The reason was that major central banks, notably the Federal Reserve and the European Central Bank, said that their policies would be more supportive of economic growth.  Until recently, the market was expecting higher rates to hold down anticipated inflation. This tends to dampen growth.  Now, however, the Fed said it will not raise rates this year and the ECB said it will take measures to stimulate lending.  The stock market reacted positively to the news.  Longer term interest rates fell (because rates in the future are not expected to rise), and this increased bond prices. We take a deeper look at the Fed’s impact on interest rates in this month’s side-bar.

What this means for you.

Financial Engines builds a portfolio that is personal to you, considering your situation, goals and tolerance for risk.  Your portfolio will probably have grown over March (though factors such as holdings of company stock can affect your individual return).  Although March was a positive month, you should still be sure to understand how comfortable you are with the inevitable ups and downs of markets and set your portfolio’s risk accordingly.  As always, it’s important that we know as much as possible about your personal situation and risk preferences. Please make sure that your account information is up to date.

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