Key Market/Economic Observations

United States
S&P 500® Completes its Recovery; Positive Start to First-Quarter Earnings Season

Domestic equity markets maintained their positive momentum through April as the S&P 500 posted its best start to a year since 1987, up 17% year to date through April 23. The rally has largely been a function of a more accommodative Federal Reserve (Fed), fading fears of a global growth slowdown, positive progress in trade negotiations, and a better-than-expected kick-off to the first-quarter earnings season. Earnings helped propel the S&P 500 to a new all-time high of 2,945, also on April 23, eclipsing the previous mark set in September 2018. This benchmark is now up more than 25% since its late December 2018 low. We continue to see a path higher for U.S. equities, but we believe caution is warranted as an uptick in market volatility would be the norm given the historically low volatility we’ve experienced thus far in 2019.

International Developed Markets
Pockets of Optimism Emerging from the Global Growth Slowdown Narrative

The International Monetary Fund (IMF) cut its outlook for global growth in 2019 from 3.5% to 3.3%, marking the third downgrade in the past six months. At first glance, the report might seem cautious given its title, “Growth Slowdown, Precarious Recovery.” In fact, the organization cited weaker growth in Europe as a notable concern due to a variety of uncertainties: Brexit, Italian debt spreads, and French protests. However, the IMF actually forecasts a modest recovery later in the year. Furthermore, key pockets of relief to the European economic outlook have started to emerge.

Emerging Markets
Robust Chinese Economic Data Offset Weakness in Korea

While U.S. large-cap equities are reaching new all-time highs, the Emerging Market (EM) index remains more than 10% below its January 2018 peak. For the first time in months, Chinese economic data were better than consensus expectations, suggesting federal stimulus measures are having a positive impact.

Commodities
Oil Climbs after Iran Sanction Waivers Expire; Gasoline near Four-Year High

Commodity prices were mixed in April, with the broad Bloomberg Commodity Index edging modestly higher, pushing year-to-date returns above 7%. Industrial metals slipped over 2% for the month, despite signs of improved economic and financial data from China and increased optimism surrounding a potential trade deal with the United States. The majority of the broader index’s increase was driven by crude oil after the United States declined to extend import waivers for Iranian crude oil, surprising consensus expectations for an extension.

Strategy Views
Demographic Shifts and the Changing Dynamics of Economic Growth 

The industrial revolution beginning in the mid-eighteenth century sparked unparalleled population growth across the globe — from less than 1.1 billion people in 1820 to over 7.7 billion in 2019, according to data from the United Nations. In concert, several other major developments (for example, vaccines, plumbing, heating and cooling, and transportation) spurred vast improvements in the quality of life. Collectively, these technological advances expanded the available labor force, enhanced productivity, and ultimately propelled economic growth. However, based on more recent trends and projections, the developed world is expected to undergo drastic demographic changes over the next several decades that are quite different from the time period from which we draw the majority of our economic experience. This month, we examine the potential impact of slower labor force growth and aging populations, the composition of future growth, and where we believe demographic shifts offer the largest opportunities today.


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