Stocks rebounded sharply in the first quarter as investors reacted favorably to the Federal Reserve’s change of heart on interest rates. When Fed chairman Jerome Powell said back in early January that the rate hiking cycle was over and that the Fed’s balance sheet was not going to contract any further, the market abruptly stopped pricing in recession for 2019 and instead started discounting a profit recovery later in the year. Over the years we have discussed the importance of liquidity – greater liquidity tends to be better for risk assets; this is yet another example of how a positive change in market liquidity can lead to a strong rally.

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