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Strongest First Quarter in Decades

The S&P 500 just had its best first quarter since 1998, and stocks have nearly recovered from the steep decline of the fourth quarter of 2018.

Gains continued in March although a slowdown in economic growth and corporate earnings became more apparent. Large caps led the way with the S&P 500 Index up 1.8% and tech-heavy Nasdaq 100 surging 3.9%. The Dow saw a more tepid gain of 0.2% due in part to Boeing weakness, and the small-cap Russell 2000 lost -2.1%.

Foreign stocks also posted solid performance with the developed market MSCI EAFE Index up 0.9% and MSCI Emerging Market Index gaining 1.1%.

Mixed signals

Stocks rallied despite slowing growth, an inverted yield curve, and unresolved trade talks. Why? The Federal Reserve cut its interest-rate hikes to potentially zero this year, which was positive for both the U.S. and global stocks. There also appears to be a growing fear of missing out among investors: March saw greater investor demand for stocks, adding fuel to already robust demand from corporate buybacks.

What to focus on now

These mixed signals have left some investors wondering what to do now. Rather than trying to predict future markets, we think a better approach is to focus on what you can control: staying invested in what’s working and owning a diversified, balanced portfolio that allows you to weather the market’s ups and downs.  

Strong quarters like this also provide a great time to check in and review your portfolio allocation. If you have a balanced portfolio, you may now be overweight stocks and might consider rebalancing to incrementally lock in some of the strong recent gains. If you are under-invested, dollar-cost averaging can help you avoid getting stuck on the sidelines (get our tips on how to get invested here).

If the volatility of the last six months was unsettling for you, now is a good time to check with your advisor and see if a more conservative allocation would still allow you to reach your long-term goals.

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