It's been a fabulous start to the year for investors — as long as you ignore all those simmering worries about a possible recession.
S&P 500 index funds are on pace to close out their best quarter in seven years, and many other investments from junk bonds to foreign stocks have also bounced back from their dismal end to 2018. But the returns would have been even better if not for concerns that slowing growth around the world may drag down the U.S. economy.
The quarter's twists are just the latest for the markets, which have yo-yoed from record heights to fear-induced sell-offs for more than a year.
The big swings have left stock and bonds looking fairly valued, said Frances Donald, head of macroeconomics strategy at Manulife Asset Management. She's optimistic markets can keep climbing this year, but she anticipates more swings along the way.
The Federal Reserve was again one of the market's main drivers, and it flipped to hero from antagonist in the eyes of many investors when Chairman Jerome Powell told a conference for economists that the central bank would be flexible in deciding when to raise rates.
All the while, companies were turning in yet another round of blockbuster profit reports aided by lower taxes. But the momentum for stocks stalled last week when a surprisingly weak report on the European economy and other worries triggered concerns about the global economy. Investors sought the safety of bonds, and that in turn triggered the alarm on one of the market's more reliable recession indicators.
Investors drove the yield for the 10-year Treasury lower than for the three-month Treasury bill for the first time since a little before the Great Recession. Such an "inverted yield curve" does not have a perfect track record as a recession predictor, but it has preceded each of the past seven by a year or two.
Like the global economy, growth is also slowing for U.S. corporate earnings. Analysts say first-quarter profits likely fell nearly 4 percent from a year earlier, according to FactSet. If they're right, it would be the first decline in nearly three years. That's setting the stage for some potentially disappointing reports when the next quarter opens on April 1.
So, investors may want to ready themselves for even more turbulence in the coming quarter. Besides earnings reports, they'll also be getting more clues about the strength of the global economy and whether the United States and China can make progress on their trade dispute to help the global outlook.
Stan Choe writes for the Associated Press.