First Quarter Markets Review
Domestic equity markets rose in March following on their strong rebound in February. The S&P 500 Index finished the month with a gain of +0.8 percent and a +1.8 percent increase for the quarter. The Dow Jones Industrial Average was also up in March, rising +0.9%, but lost -0.2% for the quarter. The technology-laden NASDAQ OTC Composite fell -2.5% in March, but gained +0.5% in the quarter. Large capitalization stocks outperformed their small capitalization counterparts in March and the quarter. Value stocks outperformed growth stocks across all capitalization sizes.
Europe dominated international equity markets in the quarter. The top five performing countries were Greece, Portugal, Italy, Denmark and Indonesia. Calculated in U.S. dollar terms, the U.S. ranked 17th out of 33 countries for the quarter.
Taxable fixed income markets declined modestly by -0.2% for March, but gained +1.8% for the quarter. Municipal bonds fared better gained +0.2% in March and +3.3% for the quarter.
Longer-maturity U.S. Treasury yields fell during the first quarter, while shorter maturities were generally unchanged to modestly higher, causing the yield curve to flatten. Pressure in developing markets drove a flight-to-quality early in the quarter, benefitting all U.S. dollar-denominated assets. But late in the quarter, Federal Reserve Chair Janet Yellen’s statements caused markets to pull forward the timing of the anticipated first increase in federal funds rate, which send bond yields higher – particularly at the short end of the curve. All taxable sectors posted positive total returns during the quarter, with a majority of the performance being generated in January, when rates fell the most. The corporate sector provided the best returns, primarily due to its longer duration and spread tightening, as investors continued to search for yield.