Reeling from 2018’s fourth quarter, over which risk markets tumbled and, as if to dare the Fed to maintain its ongoing tightening regime, US Treasury issues rallied sharply, it took only a few days into the new year for a dovish pivot to change sentiment. Foreshadowed by Fed Chair Powell’s January 3rd “low inflation” and “patient” comments, the FOMC meeting concluded later in the month with an unchanged funds rate and substantially softened messaging, suppressing volatility and providing cover for higher valuations. The runway clear, risk assets ended the first quarter in strong positive territory, as the S&P 500 Index gained 13.6% while the Bloomberg Barclays Aggregate and High Yield Indexes returned 2.9% and 7.3%, respectively, the latter on an astonishing 135 basis points of spread narrowing as risk aversion subsided. Other indicators of the reversal included emerging markets debt, which gained north of 5% to open the year after a rugged 2018, and oil, which ran up 30% (though likely for technical reasons as much as anything as economic fundamentals faded)...
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