Fidelity Bank - Trust and Wealth Management
March 2019 Market Review
William J. Fennie III
U.S. Stocks cooled off a bit in March compared to the first two months of the year, but overall finished the best quarter for U.S. stocks since 2009. The Federal Reserve’s dovish tilt has raised questions among investors about U.S. and global growth. U.S. Stocks returned 1.94% for the month and 13.65% for the 1st quarter of 2019.
With fears surrounding U.S. and global growth, investors sought solace in fixed income markets. The Bloomberg Barclays Aggregate Bond Index climbed 1.92% in March and gained 2.94% in the quarter overall. This is the largest quarterly increase for the index since 1st quarter 2016.
With continued drama surrounding global growth, negative interest rates, and Brexit, International Developed Stocks eked out a gain in March with the MSCI EAFE Index posting a 0.63% return and a 9.98% return YTD.
Emerging Market Stocks are set to cap the strongest quarter since the 1st quarter 2017 as Asian markets rallied, thanks to optimism about a U.S.-China trade deal.The MSCI Emerging Markets index returned 0.84% in March and 9.91% for the quarter.
As fears of a slowdown in U.S. growth have increased, those stocks most sensitive to the domestic economy stalled out in March. U.S. Small Caps lost 2.09% during March, shrinking their year-to-date lead over large caps to just 0.93% (Russell 2000: +14.58%, S&P 500: +13.65%). Not surprisingly, falling interest rates in March had a pronounced effect on banks; the Nasdaq Bank Index fell more than 8% during the month, but is up more than 7.70% YTD.
The best performing U.S. assets in March were High Quality stocks which brought home a strong 3.05%, extending their year-to-lead over the S&P 500 to 2.35% (YTD: S&P Quality TR: 16.00%, S&P 500: 13.65%).
Dollar strength detracted returns from U.S. investors in both Developed Markets and Emerging Markets. The MSCI EAFE index returned 1.34% in local currency terms, but only 0.63% in U.S. Dollar terms. The MSCI Emerging Markets index returned 1.37% in local currency, but the conversion to U.S. Dollars reduced that return to just 0.84%. Chinese stocks continued their strong 2019 rising, about 5% in U.S. Dollar terms in March (+27.01% YTD). Contagion fears stemming from the political and economic difficulties in Turkey have been contained.
With fears about slowing growth permeating markets, investors sought safety in bonds. The Bloomberg Barclays U.S. Treasury Index gained 1.84% in March and 3.19% for the quarter. Yields across all Treasury maturities, except 3 month U.S. Treasuries (+2.72 basis points YTD), fell by an average of more than 19 basis points year-to-date. For the first time since 2007, the 3 month U.S. Treasury yield was greater than the 10 year U.S. Treasury Yield for a time during March. Historically, an inversion of the yield curve – short-term rates higher than long-term rates – has been a reliable predictor of recessions in the next 12-24 months following the inversion.
Falling yields and credit spreads continued to benefit Investment Grade Corporate and High Yield Corporate bonds, with the indexes advancing by 2.44% and 0.94%, respectively in March. Quarter-to-date, Investment Grade Corporates and High Yield Corporates are up 4.87% and 7.26%, respectively. A stronger U.S. dollar combined with falling Treasury yields and Emerging Market contagion fears pared year-to-date gains in Emerging Markets Local Debt. The asset class lost nearly 1.25% in March, lowering its year-to-date gain to 3.01%.
Broad basket commodities were flat for March losing just 0.18%. Oil continued to surge higher from its December lows (+5.21% in March, +32.53% YTD). Consumers will continue to feel additional pressure at the pump, as gasoline continued to lead commodities in March, rallying another 15.44% (+42.39% YTD). Conversely, natural gas continued its slide losing 21.54% in March, bringing its year-to-date loss to 43.33%. REITs were a standout performer in March adding another 4.45% bringing its year-to-date total to 17.17%.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.
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March 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 4/1/2019. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large?cap segment of the U.S. equities market.