THE WORLD'S MAJOR ECONOMIES PERFORMED QUITE WELL in recent months despite the influence of political and policy upheaval. Brexit and the outcome of the U.S. election have yet to produce the negative financial outcomes some had feared. The transition in the White House did not disrupt the market uptick which began shortly after the Presidential election.
Soft data (business and consumer surveys) surged in November and have held on through April as expectations around tax and regulatory reform have driven markets higher. Conversely, hard data (housing, industrial, labor, household and retail data) has been more mixed. What gets lost in the political rhetoric, and what continues to fuel the recent stock rally, has been the sustained strengthening of corporate earnings. With 299 of the S&P 500 companies reporting, combined Q1 revenues and earnings have grown by 8 and 12 percent respectively. This is a continuation of growth seen in both the third and fourth quarters of 2016.
DURING THE FIRST QUARTER, THE U.S. STOCK MARKET (RUSSELL 3000) WAS UP 5.7 PERCENT. Nations outside the U.S. had an exceptionally strong quarter with the International Develop (MSCI World) up 6.8 percent and the Emerging Markets (MSCI Emerging Markets) led all indices up 11.4 percent. After lagging during 2016, International stocks soundly outperformed U.S. equities. A 50/50 globally diversified portfolio returned 3.54 percent for the quarter.
Technology, Consumer Cyclical and Healthcare stocks led the way from a sector perspective. Large-cap and growth companies generated the highest returns during the quarter. This is a change from the previous quarter when small-cap and value stocks were the winners.
As expected the U.S. Federal Reserve increased rates for the third time in less than 18 months. Two additional increases are expected before the end of 2017. The March increase had already been priced in the fixed income markets. During the quarter, the US Bond Market edged up 0.8% whereas the Global Bond Market fell 0.4 percent.
LOOKING FORWARD, we anticipate a stable economy and some level of continued strengthening in corporate revenues and earnings.
We're sharing a more robust PDF attachment this quarter. While you’ll notice the charts you’re accustomed to seeing with our Quarter in Review, we’ve added a few more perspectives and breakdowns of quarterly results to provide you with more detail in a way that isn’t overwhelming.
Finally, we all want absolute certainty in our investment results, but we also want the types of returns that only comes from taking some higher form of risk. We have attached a recent article that we believe you will appreciate as it relates to this investing conundrum, aptly titled the "The Uncertainty Paradox."