There is a saying about the weather here in Colorado: If you don’t like it, just wait a minute. When it comes to the stock market, one quarter is the equivalent of about a minute’s worth of weather.
The S&P 500 (total return) Index rose 13.65% in the first quarter; the largest first quarter gain since 1998. Almost the mirror image of the momentous 13.52% drop in the 4th quarter of 2018.
That should disabuse just about anyone of the notion that they can time the market.
Unlike 2018, in which the only positively performing asset class was cash, every asset class we follow turned in a positive performance in the quarter. For a comprehensive report reviewing the performance of the various asset classes and putting it all into context, see the Quarterly Market Review from our friends at Dimensional Funds Advisors. And there’s a good essay in there about being wary of investment fads.
Real Estate was the best performing asset class, with the Dow Jones US Select Real Estate Index gaining 15.72%. The small-cap Russell 2000 Index rose 14.58%. The MSCI EAFE Developed Markets Index went up 9.98%. And growth continues to out perform value. When will that end? A discussion for another day.
The Fed has apparently hit the pause button in its quest to raise interest rates. The bond market reacted with interest rates actually falling. The yield on the 10-year Treasury note decreased 28 bps to 2.41%. Accordingly, bonds had a particularly strong quarter. The Barclays US Aggregate Bond Index gained 2.94%.
One consequence of falling rates was that the yield-curve became briefly inverted. Which means that short-term rates became higher than long term rates. (Inverted yield curves are often thought to be correlated with an approaching recession.) And then this week the yield curve reverted back to its normal rising slope.
The extent to which an inverted yield curve is a reliable recession predictor and/or whether “this time is different” is a subject of never-ending debate. In any event, for long-term investors, this study by Jared Kizer the Chief Investment Officer at The BAM Alliance shows that, while volatile, stock market returns on average are positive in the three and five year periods following yield curve inversions.
So, feel free to bask in this quarter’s results. You deserve it. But don’t be surprised if it doesn’t last. Or even if it does.