Quarter One Recap: Investor Optimism Turns to Uncertainty – Introduction
Time flies. Suddenly, the first quarter of the year has ended and what a quarter has it been? The quarter started on a positive note, with excellent corporate earnings, and the optimism that the tax cuts Trump had signed would boost the economy. At that time, most analysts were increasing their market projections for the year.
Sadly, as the quarter went on, things changed and today, investors are a worried lot. They don’t have any idea what will happen in the second quarter.
First, it started with the cryptocurrencies market. As you recall, last year, this was the best performing asset class with most cryptocurrencies gaining by more than a thousand percent. The South Korean government was the first to announce a crackdown of these currencies. At that time, bitcoin was trading at almost $20,000. After the South Korea news, they all started to fall. Then, came social media networks like Google, Twitter, and Facebook.
They all announced that they would halt all advertisements on cryptocurrencies. Financial services companies like Visa, PayPal and MasterCard also announced a new crackdown on the currencies. Today, they have all fallen by more than 100% and the decline could continue.
Stocks started being hammered in February, following a highly successful January. They started falling after the employment numbers from the United States showed accelerated wages. Investors interpreted this as being the return of inflation. At that time, the major indices fell by more than 5% before starting to move up again. Then, Donald Trump announced that he would impose tariffs on steel and aluminum. This was sad news for the investment community. Stocks started to fall again, with the S&P reaching the bear territory.
After that, he announced that he would start implementing new tariffs on Chinese goods. The total value of the goods was $60 billion. China responded by announcing that it too, would start implementing new tariffs on the United States. This led the stocks to continue the decline.
Then, two weeks ago, The Guardian ran a story on Cambridge Analytica, the firm used by the Donald Trump campaign. The firm had used Facebook data to target ads. At the same time, Tesla announced that one of its cars had been involved in an accident while in the autonomous mode. This was the start of the decline of the NASDAQ which is heavily biased to the technology companies.
One of the best performing sectors in the quarter was the commodity sector. Grains like corn and soybeans have gained by more than 5% while crude oil has continued to accelerate, recently reaching a three-year high. The increase in crude oil can be associated with the reduced production by OPEC and Russia countries. It can also be attributed to the increased demand which is expected as the global economy accelerates.
Other major news during the quarter was the surge in global M&A. During the quarter, deals worth more than $500 billion have been announced. They include the purchase of Fox assets by Disney, and the proposed merger of Walmart and Humana among others.