ETON Advisors Newsletter - April 2019

A Pause or a U-Turn?

Financial markets were exceptionally strong in the first quarter of 2019. Nearly all major asset classes posted returns so positive that they virtually wiped out losses from the difficult fourth quarter of 2018.

While we are certainly happy to have experienced such strong performance in Q1, we cannot help but ask whether most of 2019's return might have been earned already in the year's first three months. No doubt there are potential upside surprises which yet could materialize, but the declining rate of corporate earnings growth in the U.S. and relatively rich equity valuations present material headwinds. Europe and Japan continue to grapple with familiar problems, and global debt levels are very high.

In the near-term, the primary macroeconomic question for investors is whether the Fed's recent announcement should be characterized as a "pause" in an ongoing process of raising short-term rates and tightening liquidity or an actual "u-turn" which will provide enough stimulus to nudge economic growth back toward attractive levels and suppress market volatility.

The first quarter of 2019 was a very profitable one for most investors, but now we must prepare ourselves for near-term challenges to economic growth and the possible risks to investors that these challenges might bring.