Quarterly Market Update – Q1 2019 By: Gabriel PotterMBA, AIFA® 2019.04.15

Key news stories

After a very weak end to 2018, the markets were apparently pent up with built-up buying pressure.  Yes, it looks like economic growth is reverting to the roughly 2% GDP range we’ve experienced for the past few years, but slow and steady growth during low unemployment and the absence of large external risks is boosting optimism.  The news headlines may have been a little hazy, the markets didn’t blink.  There are still material mistakes possible, well exemplified by the trade risk kerfuffles and unnecessary government shutdown in January, investors are focusing on the positive.

Equities

The first quarter of 2019 looks a lot like the past few years’ performance history (with the exception of the risk asset plunge in 4Q 2018).  Specifically, we note that growth stocks are outpacing value stocks.  Also, in a continuation of the trend, US equities are outpacing international positions.  Mind you – nobody is in a position to complain given the approximately 10% return in a single quarter.  First, we have to acknowledge the coincidence that the large cap value and small cap value index returns for the first quarter are identical; that’s not a misprint, the results really are the same. 

INDEX

1Q 2019

YTD 2019

US Large Cap Growth - Russell 1000 Growth

16.10

16.10

US Large Cap Value - Russell 1000 Value

11.93

11.93

US Small Cap Growth - Russell 2000 Growth

17.14

17.14

US Small Cap Value - Russell 2000 Value

11.93

11.93

Developed International Markets - MSCI EAFE

9.98

9.98

Emerging Markets - MSCI EM

9.91

9.91

 

Bonds

The Federal Reserve has given signals that the three year advance of interest rates (from 0% to 2.50%) is going to stop for the time being.  This sort of move is a positive to risk-based assets including equities and equity-correlated assets, including high yield bonds – the big winner of the past quarter.  Moreover, a stay on interest-rate hikes should reduce duration impact fears for long-bond holders and purchasers.

INDEX

1Q 2019

YTD 2019

Barclays Capital US Aggregate Bond

2.94

2.94

Barclays Capital US Intermediate Credit

3.55

3.55

Barclays Capital US Government

2.10

2.10

Barclays Capital US Gov’t/Credit Long Duration

6.45

6.45

ICE B. of America/Merrill Lynch High Yield

7.40

7.40

FTSE World Government Bond Index (non USD)

1.52

1.52

 

Alternatives

Investors hungry for income and yields over the past few years have found a lot to like in REITs.  It’s true that 2018 put particular pressure on this sector as several notable real estate securities had to cut dividends, so the rejuvenated optimism came as a soothing balm for real estate investors in the first quarter.  In other news, the price of oil partially recovered to about $60 per barrel.  To put that value in context, recall the price of oil was $75 per barrel at the beginning of 4Q, only to plummet to $45 by December.  Commodity investors are breathing a sigh of relief. 

INDEX

1Q 2019

YTD 2019

Real Estate - FTSE NAREIT All REITs TR

16.70

16.70

Commodities - Morningstar Long Only Commodity TR

10.46

10.46

Inflation - Barclays US Treasury TIPS

3.19

3.19

Hedge Fund - Morningstar Broad Hedge Fund TR USD

6.55

6.55

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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