Why the remarkable stock market recovery could just be getting started

The first quarter was phenomenal for markets, which have been trending higher on optimism about the Fed's dovish turn and a potential trade deal between Washington and Beijing.

The end result? Fallout from last year's late, chaotic selloff has been almost entirely erased. The S&P 500 finished Thursday just 1.75% away from its all-time high, while the Dow has only 1.65% to go. They could cross those milestones within a matter of days.

It's the first time since 2013 that the S&P 500 was higher in each of the first three months of the year, according to Ryan Detrick, senior market strategist at LPL Financial. That could mean good news for the rest of the year, he wrote in a note Wednesday.

"This won't be an easy ride, and we fully expect some volatility, but this is definitely a bullet point for the bulls in 2019," he said.

A diversified portfolio of stocks is always the best strategy for investing for the long-term. That's the best insurance policy against market dips like the one that took place between October and January. But most market analysts expect stocks that perform well in a strong economy will continue to do well throughout 2019.

Some concerns remain. There are still questions, for example, about how much markets have priced in what is set to be a disappointing round of first quarter earnings. Analyst expectations were steadily lowered throughout the quarter.

Earnings for S&P 500 companies were expected to decline 4.1% as of Thursday, according to FactSet. If this happens, it would mark the first year-over-year decline in earnings for the index since the second quarter of 2016.

Samsung warns its profits will drop 60% as smartphone demand slumps

Analysts generally believe that companies have adequately managed expectations, and markets have already baked in weaker numbers. It's also difficult to compare results to last year, when companies were buoyed by corporate tax reform.

Yearly corporate earnings growth in the mid-single digits would be "just fine," according to Daniel Miller, director of equities at GW&K Investment Management.

Investors are also probably more concerned about which companies can best play the long game, even if they took a beating at the start of the year. Experts told CNN Business last month that many of the big multinationals can weather short-term turbulence, assuming the United States and China reach a trade deal.

Investors also could experience bouts of panic over data that shows global economic soft spots. And anxiety briefly hit last month when the yield on 3-month Treasuries rose above the rate on the 10-year for the first time since 2007.

A so-called yield curve inversion, in which short-term rates jump above long-term rates, has preceded each of the last seven recessions.

Many investors are brushing aside the flip. They say it's important to watch global economic data for weakness — but that the partial yield curve inversion doesn't say much.

The bond market flashed recession. So why is the stock market booming?

"It tells us what we already know, which is that a recession could come in two years," said Jason Draho, head of Americas asset allocation at UBS Global Wealth Management's Chief Investment Office. "The markets could still perform quite well before then."

Peter Boockvar, chief investment officer at Bleakley Advisory Group, said in a note Thursday the divergence between rallying stocks and depressed bond yields may have an easy explanation.

Maybe it's "just as simple," he said, as the flattening of the bond market curve reflecting the current slowdown. He added that the stock market may just think these issues are temporary, and a "rebound in growth" is coming soon.

The consensus view at present seems to be that US economic growth will slow but will not go negative 2019. and the second half of the year could be stronger economically than the first.

"In spite of all the uncertainty, the US economy continues to grow in 2019, albeit more slowly than in 2018," JPMorgan Chase CEO Jamie Dimon said in his annual letter to shareholders on Thursday.

He continued: "Employment and wages are going up, inflation is moderate, financial markets are healthy, and consumer and business confidence remains strong, although down from all-time highs."

But Dimon added that markets don't always reflect real economic conditions, and volatility in the fourth quarter may be a "harbinger of things to come."

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