The big news in March was the renewed fears of a global slowdown which prompted a decline in interest rates. In the U.S. the yield on the benchmark 10-year Treasury declined around 30 basis points during the month and stands at 2.41%.
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In aggregate, fundamentals continue to be constructive for the equity markets as economic growth and earnings are expected to moderate, but be decent, for the year. Monetary policy is accommodative. The global slowdown concerns were reignited by weak economic data released in Europe and China. Economic data domestically continues to be mixed and inflation is running below normal.
Both global equity and fixed income markets moved higher for the month. Domestically, the S&P 500 and NASDAQ posted returns around 2% - the Dow Jones Industrial Average was flat. Developed International and Emerging Markets advanced around 1%. Bonds continued to rally globally with the rate declines: the Barclay’s Aggregate Bond Index was up nearly 2% in March. High Yield bonds domestically also advanced about 1% and are up in excess of 7% for the year.
For the first quarter domestic markets posted strong returns – the NASDAQ is up over 16%; the S&P 500 over 13%, and the Dow over 11%. Mid -Size and Small Capitalization stocks have also posted strong quarterly results advancing approximately 16.5% and 14.5% respectively. The domestic bond market has returned about 3%; cash equivalents around .60%. Major global equity indices are all higher for the quarter with Developed International and Emerging Markets returns running about 10%.
Growth stocks continue to overwhelmingly outperform Value stocks for both March and year-to-date. The Technology sector continues to outperform other S&P sectors with returns of around 20% for the year. Consumer Discretionary stocks (the sector is dominated by Amazon) also continue to perform well. Interestingly, the Real Estate sector has also done well for March and year-to-date. The relative outperformance by the Real Estate sector is probably attributable to the decline in interest rates. Industrials which were also doing well going into March underperformed on a relative basis (relative to the other S&P sectors) during the month posting negative returns (-1.24%) – this may be attributable to Boeing’s current problems. That said, the sector is up in excess 16% year-to-date. In aggregate the more cyclical sectors have outperformed the more defensive sectors year-to-date though performance in March was a mixed bag.
Looking forward we are about to enter the Q1 earnings season. As previously mentioned earnings are anticipated to decline on a year-over-year basis; Q2 earnings are forecast to be flat. An earnings recession will result if Q2 earnings go negative (again, on a year-over-year basis). The forward guidance provided by company management on the Q1 earnings call will be important. It seems the equity markets have looked past Q1 earnings and are anticipating a positive outcome to the trade negotiations with China. It is an interesting time in the capital markets as the equity markets are fairly bullish and global fixed income markets are sounding alarms.
Major market index returns for the month were as follows:
- S&P 500 1.79%
- NASDAQ 2.61%
- Dow Jones Industrial Average .05%
- Barclay’s Aggregate Bond Index 1.92%
- High Yield Bonds .94%
- 3 Month Treasury Bill .20%
- MSCI EAFE (International Equity) .80%
- Emerging Markets 1.21%
- 10 Year Treasury Yield 2.41% (at month end)
Indices for the week and YTD are as follows:
- S & P 500 up 1.20% for the week; YTD index return is 13.07%
- NASDAQ Composite up 1.13% for the week; YTD index return is 16.49%
- Dow Jones Industrial Average up 1.67% for the week; YTD index return is 11.15%
- Benchmark 10-year Treasury bond yield stands at 2.41% - down 3 basis points on the week
Week in brief:
Both domestic stocks and bonds continued to rally. The media print headlines are pronouncing this is the best start to a year in the last 20. Of substance, the Personal Consumption Expenditure (PCE) was released Friday and it came in below the Fed’s 2% inflation target (PCE is the “go-to” inflation gauge for the Fed.). This is yet another sign that the probability is remote that rates are raised anytime soon. Few meaningful earnings releases next week. Heads up – Dow has been split apart from DowDuPont and begins trading under the ticker DOW on Tuesday.