As of the end of March the scope and the duration of Covid-19 domestically was unknown. The uncertainty was duly reflected in market returns for the month. Conceptually, relative returns by market capitalization were what you would expect, but by style (Growth versus Value) not so much. The larger the market capitalization of the equity benchmark the better the performance. Mega Cap stocks lost ~11%; Large Cap ~12.50%; Mid Cap ~20%; Small Cap 22%. Growth stocks continued to outperform Value across capitalization size (Mega Cap, Large Cap, Mid etc.). The average difference between Growth and Value styles was roughly 600 basis points.
Performance in domestic Fixed Income markets was also predictable in March. Treasuries had positive single digit returns. High Yield bonds declined close to 12%. The Barclay’s Aggregate which measures most of the broad fixed income market was slightly negative. In a nutshell interest rate sensitivity was a positive; credit quality or lack of it was a negative.
More important than performance was the illiquidity of many of the fixed income submarkets as the Pandemic intensified; Mortgage Backed Securities and High Yield specifically. The Federal Reserve acted quickly and facilitated proper functioning of the Fixed Income markets. While domestic Treasury yields plummeted, the good news is the yield curve steepened and is no longer inverted.
Drilling down into S&P 500 sectors Health Care, Consumer Staples, and Technology outperformed the broad market in March, though all were negative. Utilities performed about in-line with the S&P 500 Index. Energy was once again the worst performer declining nearly 35% for the month; -51.06% year-to-date. Crude oil prices have dropped and maintained levels in the low $20’s (price per barrel). In addition to less demand as a result of the Pandemic, the Saudi Russia production war has flooded supply. No relief is currently in sight.
Year-to-date through March Technology, Health Care, and Consumer Staples have outperformed the other eight sectors posting performance of -12.22%, -13.07%, and -13.39% respectively. Besides the aforementioned year-to-date decline in Energy, Financials have been the next worst performing sector declining 32.34%
International capital markets traded in line but declined slightly more than domestic markets. On the equity side, the less developed the countries represented in a particular benchmark the worst the performance. In descending order – Developed International, Emerging Markets, Frontier Markets (declining ~13%, 13.25%, and 21% respectively). International bond markets (including Sovereign issues) posted very low single digit declines.
Year-to-date performance very much tracks what happened in March. To refresh memories, markets turned meaningfully negative the last week of February. Specific performance numbers for the year through March are posted below, Note, for the year, across capitalization size, Growth has outperformed Value on average by over 1000 basis points. The NASDAQ Composite has meaningfully outperformed both the S&P 500 and the Dow Jones Industrial Average. This is consistent with Mega and Large Cap stocks that are Growth oriented outperforming on a relative basis.
Our focus on large cap higher quality domestic stocks has thus far been of benefit. We have reduced exposure to High Yield bonds and Emerging Markets equities selectively. Fortunately, in general, we had little allocation exposure to begin with in those spaces. The same can be said for Mid Cap, Small Cap, and Developed International.
Major market index returns for the month and year were as follows:
- S&P 500 Index -12.51%; -20.00%
- NASDAQ -10.12%; -14.18%
- Dow Jones Industrial Average -13.74%; -23.20%
- Barclay’s Aggregate Bond Index -.59%; 3.15%
- High Yield Bonds -11.46%; -12.68%
- 3 Month Treasury Bill .03%; .27%
- MSCI EAFE (Developed International Equities) -12.97%; -21.17%
- Emerging Markets -13.17%; -19.34%
- 10 Year Treasury Yield ~.70% (at month end)
Indices for the week and YTD are as follows:
- S & P 500 down 2.08% for the week; YTD index return is -22.97%
- NASDAQ Composite down 1.72% for the week; YTD index return is -17.83%
- Dow Jones Industrial Average down 2.70% for the week; YTD index return is -26.23%
Benchmark 10-year Treasury bond yield stands at .60% - declining 8 basis points for the week.