The end of 2017’s Q1 draws to close a quarter that saw the bull market ushering in its ninth year and politics domestic and abroad impacting markets in the United States and beyond.

The New Administration & the Markets

Politics certainly played a starring role in the U.S. market’s direction. Initial policy stumbles by the new administration may have actually contributed to gains as it became evident that Donald Trump will face considerable checks and balances, even within his own party. Most importantly, we know that while President Trump seeks big policy initiatives, most of the economy will continue to move forward much as it did before the election. 

Politics aside, however, earnings growth on the corporate front reported from Q4 was more than enough to support the rally, according to FactSet. S&P 500 earnings grew 5% year-over-year and are estimated at 9.1% for Q1, and if met, this would be the highest quarterly growth rate since 2011. More so than politics, this was likely the true driver of a strong Q1.

Populism in the EU

It wasn’t just in the United States where politics took the spotlight, however. After simmering in Europe for years, Populism has gained traction and begun to have a market impact. Many Europeans want to maintain more control of their borders and no longer want trade rules dictated by the EU. The trend is a threat to the EU, and is likely one reason U.S. stocks have outperformed over the past few years. However, this quarter, international stocks outperformed the U.S. Much of this was currency related. The post-election dollar rally partially reversed as it became clear the new administration’s spending plans will face opposition. The euro got a boost in March with the defeat of far-right candidate Geert Wilders in the Netherlands.

Style Rotations Within Equity Markets

Perhaps more so than at any time in this bull market, we think it is important to stay diversified at the sector level.