The first quarter closed last Friday, but the markets were very different in March than earlier in the year.
The change altered the overall performance of different assets for the quarter, since U.S. stocks didn’t do much in March. They took a break from the strong rally they had in January and February.
But overseas stocks continued to appreciate. As the trade war talk died down, investors began buying international stocks. The overseas stocks ended the quarter with higher returns than U.S. stocks.
The S&P 500 returned only 0.10% for March and was up 6.03% for the first quarter. The Dow Jones Industrial Average lost 0.61% for March but still had a 5.14% return for the quarter. The Russell 2000 was up 0.14% for March and 2.48% for the quarter.
But the All-Country World Index rose 1.23% for March and returned 6.84% for the quarter. Emerging market stocks rose 2.49% for March and 11.31% for the quarter. That made them the leaders for both periods.
Bonds were volatile throughout the quarter. Long-term treasuries lost 0.59% for March but returned 1.42% for the quarter. Investment-grade bonds lost 0.34% for March and gained 1.22% for the quarter. Treasury Inflation-Protected Securities (TIPS) lost 0.10% for March but gained 1.22% for the quarter. High-yield bonds lost 0.33% for March but returned 2.22% for the quarter.
The dollar has been having a tough time lately after soaring following the election. It was down 0.81% for March and 1.96% for the quarter.
Energy-based commodities lost 3.39% for March and 5.19% for the quarter. Broader-based commodities lost 3.10% for March but only 2.85% for the quarter. Gold lost 0.83% for March but gained 7.35% for the first quarter.
This was the 13th quarter since the bull market began in which the S&P 500 returned more than 5%, according to Bespoke Investment. Also, the pattern has been for a strong quarter to finish with a weak third month, as happened in the first quarter.
The quarter’s performance shows the importance of ignoring the daily headlines and other noise that passes as market commentary. Market action and economic data over a month don’t establish a trend. Focus on the factors that matter to markets over longer periods.
The service sector is growing, but not as fast as a month ago.
The ISM Non-Manufacturing Index declined to 55.2 from 57.6. That’s a five-month low, and the index declined primarily because of slowing employment growth. Interestingly, export orders increased sharply.
The PMI Services Index seconded the slowing in services. It declined to 52.8 from 53.8. The second isn’t as great as ISM’s but still indicates slower growth in services. Some analysts say weather was responsible for much of the decline.
Personal Income had a solid 0.4% increase, and the previous month’s income growth was revised higher to 0.5%. But consumers aren’t spending that extra income yet. Spending rose only 0.1% last month after a 0.2% rise the previous month.
But the Personal Income and Outlays report showed the PCE Price Index, which is the Fed’s preferred measure of inflation, rose 2.1% over 12 months after a 0.1% increase in March. That puts inflation at the Fed’s target. The core PCE Price Index, subtracting food and energy, rose 1.8% over 12 months.
Consumer Sentiment, as measured by the University of Michigan, declined a little to 96.9. But it still is near the highest levels of the economic recovery.
Businesses in the Midwest continue to do well, according to the Chicago PMI, which rose to 57.7 from 57.4. Most analysts were expecting a slight decline.
The major surveys of manufacturers reported slight declines in activity. The more widely followed ISM Manufacturing Index dipped to 57.2 from 57.7. That’s a little above expectations but is the first monthly decline since August. Even so, it indicates solid growth. Likewise, the PMI Manufacturing Index declined to 53.3 from 54.2. It was at 55 in January, so it appears to be declining steadily. This report is an outlier from all of the other manufacturing reports.
Factory Orders delivered a solid 1% increase, with last month’s number revised higher to 1.5%. Unfortunately core capital gains, which represent basic business investment, declined 0.1% after only a 0.2% gain the previous month. Other data sources recently indicated slow, steady growth in business investment, so we’ll have to wait and see if this is an outlier.
Expectations for Friday’s Employment Situation reports were raised by the ADP Employment Report. It found 263,000 new private sector jobs were created in March. That’s above the revised February report of 245,000 jobs (down from an initially reported 298,000). But it was well above analysts’ expectations.
New unemployment claims declined by a whopping 25,000, the largest decline in two years. The four-week average declined by 4,500. While the weekly and four-week numbers remain near-historic lows, the four-week average now is about 10,000 higher than its level a month ago. That still indicates a strong labor market, but perhaps not as strong as a few months ago.
The S&P 500 declined 0.31% for the week ended with Wednesday’s close. The Dow Jones Industrial Average fell 0.02%. The Russell 2000 lost 1.40%. The All-Country World Index retreated 0.47%. Emerging market equities lost 0.23%.
Long-term treasuries fell 0.08%. Investment-grade bonds added 0.19%. Treasury Inflation-Protected Securities (TIPS) appreciated 0.31%. High-yield bonds rose 0.61%, while the dollar gained 0.60%.
Energy-based commodities soared again, this week by 1.64%. Broader-based commodities rose 0.30% but gold fell 0.42%.
Bob’s News & Updates
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