Volatility in the U.S. stock market has returned. After record-low levels of volatility last year, the first quarter saw daily movements in the S&P 500 of greater than 2% on six different occasions. Inflation, trade, and technology have dominated the headlines. Markets soared in January, only to drop 10% in February due to increased inflation fears. They recovered again before falling sharply on concerns about tariffs and a potential trade war. Most recently, technology stocks led another downturn as Washington shined a spotlight on the sector. By the end of the quarter, the emerging market index was the only major index that posted a positive return.
In the U.S., growth stocks outperformed value stocks across all market sizes. Although technology has struggled recently, it had the strongest performance for the quarter, with returns of 3.5%. Telecom, consumer staples, and energy continued to perform poorly. Smaller U.S. stocks fared slightly better than larger U.S. stocks.
International stocks in developed markets performed on par with U.S. stocks. They ended slightly down for the quarter. Emerging markets were the only asset class that managed a gain for the quarter, ending up 1.47%.
The Federal Reserve raised the federal funds rate by 0.25% as expected. The yield on 10-year Treasury ended the quarter at 2.74%, up from 2.41%. Rising rates put pressure on bonds, with the overall bond index ending down 1.46%. High yield bonds performed slightly better but were still down 0.86% for the quarter.
After a period of very calm markets last year, the turbulence can feel quite uncomfortable. However, the volatility that we are now seeing is quite normal when investing. Despite the recent market downturn, the underlying global economy remains strong. In the U.S., unemployment remains low at 4.1%, corporate earnings are solid, and the tax cut will further stimulate the economy. Diversification among the asset classes helps smooth out the ride. Patience in long-term investing is always rewarded.
|Index||1st Quarter 2018||Year-to-date|
|Dow Jones 30||-1.96%||-1.96%|
|Bloomberg Barclays U.S. Agg Bond||-1.46%||-1.46%|
|MSCI EAFE Index||-1.41%||-1.41%|
|MSCI EM Index||1.47%||1.47%|
Sources: Y Charts and J.P. Morgan Asset Management
Figures as of March 31, 2017. Past performance cannot guarantee future results.
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