It was nothing short of a dream run for American large-cap stocks, as the S&P 500 witnessed one of its finest quarters at the end of March 2019. This is the first time in U.S. history that a bull market has run for ten straight years. The prolific first-quarter results provided the best start to a year since 1998.
All the major U.S market indices have registered tremendous growth in the past 10 years; the Dow has grown 300%, the S&P 500 has reported quaternary growth, and the Russell 3000 is up by 350%. Although, it wasn’t a linear growth at all. 2018 saw cash rising to be the best-performing asset class, with all the major indices reporting negative growth, apart from U.S. fixed income registering flat numbers. In fact, the sharp correction noticed on Christmas Eve had investors worried about an upcoming bear run. However, the markets have, yet again, proven experts wrong with their winning streak.
While the global markets are under pressure from Brexit, the market sentiment is improving with positive developments in the U.S-China trade discussions, and a turnaround of the Federal Reserve’s stance towards the monetary policy. Although it’s important to note that the American economy is gradually slowing down, with the year-over-year GDP growth standing at 3% for 2018, and expected growth of 2% this year. It is critical to note that a slowing global economic environment and the paling impact of the 2018 tax reforms are likely to take a toll on corporate earnings in 2019. Having a diversified portfolio would be the key to enduring this sluggish economy.
The driving force behind a quintessential first quarter was the U.S. equities, posting remarkable returns throughout different segments. The rally was led by large-cap stocks, represented by the S&P 500, growing over 13.6% through the quarter. Under the large-cap segment, growth stocks (included in the Russell 1000 Growth Index, 16.1%) performed better than value stocks (Russell 1000 Value Index, +11.9%). Small cap stocks (Russell 2000 Index) posted better returns than their large-cap counterparts, gaining more than 14.6% in the quarter. Growth stocks (Russell 2000 Growth Index) had a better run than value stocks (Russell 2000 Value Index) in the small-cap segment as well, with the former growing 17.1% and the latter 11.9%.
Despite a somewhat challenging environment, both developed and emerging economies registered significant gains in the first quarter. The MSCI EAFE Index, representing international-developed equities, registered a growth of 10.6% in local currency terms and roughly a similar figure (10.0%) in USD terms, indicating a positive growth despite the uncertainty surrounding Brexit. The U.S. investors witnessed negligible effect of currency movements on their gains. With more conviction from both China and the U.S to resolve their trade issues, the emerging markets (MSCI Emerging Market Index) noted a rise of 9.8% in local currency terms and 9.9% in USD terms.
Investors took a sigh of relief with the respite offered by the first quarter. The key learning from the past couple of months is that of focussing on a disciplined long-term strategy instead of trying to predict the short-term market trends. Market volatility can create panic among investors, but during these times, it is imperative to have faith in your portfolio strategy and practice patience through these unsettling periods. A disciplined investor knows how to benefit from a bull or bear market, so it’s about the right time to reset your investment practices for long-term success.