Q1 Ended the Dow’s 9-Quarter Winning Streak; Can Q2 Bring It Back?

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Following a valiant effort Thursday to recover some of its losses, the Dow Jones industrial average index closed the first quarter of 2018 down about 2.5%. About the only good news is that it could have been worse.

The Dow hit an all-time high of 26,616.71 in late January but fell on tough times in February that only got worse in March. The official beginning of the “correction” — defined as a 10% drop in the index — occurred on February 8.

Interestingly, FactSet reported last week that the 2018 consensus annual estimate for earnings per share among stocks on the S&P 500 index rose 7% during the quarter, the largest first-quarter increase in the annual estimate since FactSet beginning tracking the number in 1996.

That would seem to indicate that all’s right with the world. But offsetting the news on earnings were a perceived quicker rise in interest rates under new Federal Reserve Chair Jerome Powell, less trading action and more volatility. Add to that the still-unknown impact of the Trump administration’s tariffs and the sudden weakness in tech sector stocks.

Since mid-March tech stocks have shaved their year-to-date gains from about 11.5% to just 3.2%. Hardest hit have been the internet software and service industry. Facebook Inc. (NASDAQ: FB), for example, dropped nearly 18% of its value since March 16 before recovering slightly to close Thursday down about 14% in the two-week period.

The two best-performing Dow components for the first quarter were Intel Corp. (NASDAQ: INTC) and Cisco Systems Inc. (NASDAQ: CSCO), hardware makers that have so far been immune to the uproar over the use of personally identifiable customer data.

Will the second quarter see a turnaround? Many analysts see volatility continuing, which is not a good sign. A better quarter may depend even more on a turnaround in the tech sector, and that’s anything but a cinch right now. Throw in the impact of Trump’s tariffs on some of the Dow’s industrial giants and the outlook becomes even murkier. Stay tuned.

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