- GDP in the fourth quarter was up 2.9%
- Stock prices saw continued volatility as the tariff tantrum weighed on stocks
- Bonds advanced in March as yields declined
2018 is turning into a markedly different year for investing than 2017. In the first three months of this year, the S&P500 had 6 trading days of 2% (up or down) moves. Last year we had none. Stocks have been selling off in what has been dubbed a “tariff tantrum” as the US spats with some trading partners in an effort to shrink the large trading deficit. As a result, the S&P500 lost 2.54% in March, and down 0.76% for the first quarter. This was the first quarterly loss for the index since the third quarter of 2015.
Small and mid-cap stocks held up better than their larger counterparts. The Russell 2000 index (small caps) gained 1.29% while the Russell Mid Cap was up 0.06%. Small and mid-cap stocks were spared from the trade fears as they tend to be more domestically oriented while large caps are more globally diversified. From a style standpoint, value outperformed growth in large caps while growth outperformed value in small caps. Financials (-4.31%) were hit the hardest as interest rates declined during the month. Materials (-4.24%) and Technology (-3.90%) sold off with investors questioning future overseas revenues. Real estate (+3.78%), utilities (+3.76%) and energy (+1.66%) showed strong monthly performance, despite lagging the overall market over the last year.
International stocks also saw declines for the month with the developed markets down 1.8% and emerging markets down 1.86%. Investors pulled out of Russia (-3.74%) as many countries stood behind the U.K.’s decision to expel Russian diplomats, and China (-3.29%) when they returned fire in the tariff war with the U.S.
Fixed income markets held up well during March, with the Bloomberg Barclays US Aggregate Bond Market up 0.64%. Interest rates declined with the 10-year Treasury bond at 2.74% to end the month. Credit spreads widened, hurting high yield bonds (-0.6%) while global bonds (+1.06%), TIPS (+1.05%) and municipals (+0.37%) performed well.
While stocks have been whipsawed by trading talks, profit taking and the emergence of volatility, the fundamentals still look healthy. US GDP in the fourth quarter beat expectations, growing 2.9%. Corporate earnings are expected to come in strong over the next few months. Long term investors should be fine as long as they can stomach the short-term gyrations. In times of higher volatility, well-diversified portfolios should help investors feel a smoother ride.
As always, please reach out to any member of the Bernardo Wealth Planning team if you have any questions or concerns.
Bill Roth, CFA
Sources: Wall Street Journal, JPMorgan, Morningstar Direct