In the shortened trading week, stocks continued their strong 2019 rebound with positive news from the Federal Reserve Open Market Committee minutes and the trade negotiations with China. In the minutes from the January meeting, the Fed seemed open to the idea of an end to the balance sheet reduction and limited additional rate hikes this year. Given the strong reaction in December to the Fed’s communications, this came as welcome information to the markets. While details are still pending, it appears that progress is being made in the discussions with China and that the President is willing to extend the March deadline for increasing tariffs on China while they continue to work out an agreement.
Small cap stocks returned a strong 1.3% return last week – kicking the year-to-date gain up to 17.1% and the three year annualized return to 18%. Emerging market stocks also had a very healthy week without the headwinds of a tightening Fed and stronger dollar as well as limited trade tensions. Given the damage to international and emerging stocks in 2018, however, there is still plenty of upside needed to catch up with their US counterparts. Yields crept down a little last week with the softer Fed minutes and bond prices were slightly up for the week. Commodities also had a strong week with increasing energy prices.
Click on image below for larger view.