Benchmark Returns for the Period Ended March 2017
| Annualized | ||||
|---|---|---|---|---|
| Quarter | 1 Year | 5 Year | 10 Year | |
| US Treasury Bills (one month) | 0.11% | 0.26% | 0.08% | 0.56% |
| Barclays Capital US Gov’t/Credit Inter Bond | 0.78% | 0.42% | 1.88% | 3.76% |
| Standard & Poor’s 500 | 6.07% | 17.17% | 13.30% | 7.51% |
| Russell 1000 Value (large cap value) | 3.27% | 19.22% | 13.13% | 5.93% |
| Russell 2000 (small cap) | 2.47% | 26.22% | 12.35% | 7.12% |
| Morgan Stanley Europe, Australia and Far East (EAFE) | 7.25% | 11.67% | 5.83% | 1.05% |
| Wilshire REIT | 0.03% | 1.98% | 9.76% | 4.42% |
| Source for returns: Morningstar TM as of 3/31/2017. | ||||
Quarterly Commentary
Markets delivered a robust performance for the first quarter of 2017. Domestic indexes achieved multiple record highs and volatility dampened. The Dow and Nasdaq posted their largest quarterly gain since 2013 while the S&P 500 enjoyed its seventh straight quarter of gains, closing up 6.07%. The Dow closed the quarter up 5.19% and matched the 1987 record of closing at a new high for twelve consecutive sessions. The Nasdaq Composite posted an impressive gain of 10.13%. Small- and large-cap value stocks, as represented by the Russell 2000 and Russell 1000 Value Index, had slightly lower returns at 2.47% and 3.27% respectively. The yield on the 10-Year Treasury declined slightly, ending at 2.39%.
In March the Fed continued to slowly unwind its nine-year economic stimulus campaign by raising interest rates another quarter point. The Fed’s statement indicated a more upbeat outlook for the economy and reiterated that “the labor market has continued to strengthen” and that “economic activity has continued to expand at a moderate pace.” U.S. economic growth slowed less than previously reported in the fourth quarter with GDP increasing at a 2.1% annualized rate vs. the 1.9% estimate. The U.S. consumers’ confidence survey rose to its highest level since 2000, led by optimism for finding work and brighter outlook of business conditions. With these considerations, unemployment at 4.7% and inflation nearing the 2% target, two more rate hikes in 2017 is a strong possibility.
A weakening U.S. Dollar provided a currency exchange tailwind to international stocks that continue to battle back from a decade of underperformance. After nearly 5 years of lagging behind the S&P 500, emerging markets, as represented by the MSCI Emerging Markets Index posted an impressive quarterly return of 11.45%. Returns for other international stocks as represented by the EAFE were lower but still in positive territory with gains of 7.25%.
This quarter, it was easy to get sucked into the news and hype of the Dow reaching the “magical” 20,000 level. Although reaching these milestones is often a bullish psychological indicator, it means very little. First, it is just a nice round number that makes us feel like we accomplished something — not much different from a car odometer turning over 100K. There is nothing noticeably different the mile before or after. Second, when the Dow hit 10,000 in 1999, it bounced over that threshold and back 67 times for more than 10 years. Finally, the Dow is only made up of 30 very large-cap stocks which merely represents about 0.25% of the total holdings represented in a typical RCG portfolio. Human nature leads us to embrace ideas, factoids or, in this case, market performance that agrees with what we want. Obviously, we all want the market to rise. Investing is the crossroads where economics and psychology come together.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.
