March saw outperformance in our accounts compared to the ongoing weak performance among the major indexes, with the Dow Jones falling more than three percent this month and S&P 500 losing two and a half percent. The losses in both February and March produced a down first quarter for the Dow as well as the S&P 500, which lost 2.3 and 1.2 percent respectively. This is the first losing quarter in the two largest US indices in over two years. We are very encouraged to make positive total returns in the face of March’s downside selling pressure.
The resignation of Gary Cohn, President Trump’s chief economic advisor, came as a surprise to many. As the leading voice behind the income tax cuts of 2017, Cohn was vociferously opposed to the tariff plan on steel and aluminum. Predictably, the market sold off immediately upon the news of Cohn’s departure (the Dow was down about 200 points on the day after). This was compounded toward the end of the month when the Dow sold off another 1,200 points in the 48 hours after President Trump announced a $60 billion tariff against a wide range of Chinese goods. In response, China’s government announced their own tariffs, the details of which will be forthcoming but will most certainly provide more volatility.
We are most concerned with the shrinking global GDP growth. We began to notice this in the Eurozone and Japan early last Summer, and it seems to be spreading to the US as well. As illustrated in the graph below, the slowing of growth in the economy came across the ocean from both sides and hit the US at the beginning of the third quarter of 2017.
One might wonder why are we referencing the Eurozone and Japan, as opposed to countries like China and Brazil. China and Brazil are considered emerging markets, while the Eurozone and Japan are mature, developed economies. South Korea just saw its economy contract for the first time since the Great Recession; exports fell to their lowest level in 33 years in the fourth quarter of 2017. This is noteworthy because South Korea’s economy revolves around exportation of goods. A decline in exports can therefore be seen as an indicator of overall global economic health. Higher interest rates are further exacerbating the global economic slowdown. We believe markets are responding with increased volatility. Five of the last six trading days were marked by the S&P 500 moving more than +/‐ 1.5 percent, while trading above S&P 200‐day moving average. The last time we saw that was in April 2000, 4 months before the start of a ‐45 percent correction in the S&P 500.
As always, please feel free to reach out to us with any questions that you may have. We are grateful for the trust that you place in us.