Small capitalization stocks staged a furious rally to kick off 2019, with the Russell 2000 up nearly 18% year to date at the early March peak. Of course, small caps were down far more than large caps late last year, as the Russell 2000 lost 20.5% in the fourth quarter for the worst quarterly decline since the U.S. debt downgrade during the debt limit crisis in the 3rd quarter of 2011.

As this current economic cycle continues to age, LPL Research believes that we should expect better performance from large capitalization stocks, as they tend to perform better in the latter innings of an economic expansion. Other reasons for late stage large cap performance can be attributed to tighter financial conditions, trade policy successes, a weaker dollar and possible fading impact from tax reform.

Today, the Federal Reserve (Fed) kicks off its second two-day meeting of 2019, and market participants are overwhelmingly expecting the Fed to hold rates steady with a commitment to flexibility. Still, Fed Chair Jerome Powell will be tasked with a difficult balancing act as he addresses slowing, but sound U.S. data and tenuous global affairs. Fed fund futures imply that bond market investors see a rate cut as more likely than a rate hike by the end of 2019, a scenario that has essentially flipped from just 4 months ago. LPL Research sees the lowered rate expectations as the product of near-term global headwinds. As these headwinds subside, U.S. growth could stabilize, and inflation could pick up modestly. If this happens, the Fed may hike once in the second half of the year after carefully communicating a change in stance to markets.

In general, interest rates are still stuck. Rates have fallen asleep this year, and it’s becoming difficult to see what could wake them up. The 10 – year Treasury yield is still hovering in a 23-basis point (bp) closing rage year to date, its smallest since 1965. LPL sees the stall in long term rates as a clash between steady economic growth and rising inflation expectations, and higher global demand amid lower yields in other major regions. Hopefully, sound economic fundamentals will eventually prevail over global uncertainty.

Most of the tax reporting information generated by LPL Financial has been sent to our clients. As far as we are aware, the only data yet to be sent are K 1’s and they are set to be mailed by the end of March. If you need any additional information for your tax preparer, please contact my assistant Rose, and she will be happy to forward any information you may need.

Lastly, many of you have embraced my new appointment scheduling system accessed from our website. Thank you! This has been very successful! Of course, the old-fashioned way of calling us is still available should you so choose. Spring seems to have finally arrived in Reno – Yay! – All the Best – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary and LPL Research Weekly Economic Commentary, both dated March 18, 2019, along with LPL Research Daily Market Update dated March 19, 2019. Approved Tracking #: 1-834343.