Financial Markets Just Delivered a Powerful Reminder

What an impressive start to the year for US stocks! Not only did the S&P 500 Index achieve its largest first-quarter gain since 2019, it did so amidst significant challenges.

Despite the tragic and deadly wars in Gaza and Ukraine, escalating tensions between major global powers, the further weaponization of investment restrictions, and the unsettling news of three major advanced economies slipping into recession (Germany, Japan, and the United Kingdom), the S&P 500’s gains accelerated and broadened. The benchmark surged 10.2%, outpacing the Dow Jones Industrial Average (5.62%) and the Nasdaq Composite Index (9.11%). Remarkably, these gains occurred alongside a notable shift in expectations for interest rates that resulted in a 30 basis-point increase in the yields on two-year US Treasury notes and a similar move for 10-year yields. The 13% rise in Brent oil also failed to derail the strong rally.

S&P getting stronger

This stock market strength amidst seemingly adverse global conditions is striking, especially given domestic political uncertainties in key countries and the limited amount of global policy coordination in the face of problems common to many countries. The strength can be attributed to two main factors: bottom-up and top-down influences.