Staying The Course…With Some Adjustments
Volatility returned to the markets in the first quarter after a long period of calm. Stocks were up and down throughout the quarter, although, in the end, the S&P 500 Index returned-0.76%. We expect this volatility to continue for the balance of 2018.
Some areas of relative strength were growth stocks, mid and small cap stocks, and emerging markets. Relative weakness showed up in value stocks (more mature industries) and developed country foreign stocks, with the MSCI-EAFE index returning -1.53%. Bonds were down as the Barclays U.S. Aggregate Index returned -1.46%, as the Fed continued to raise short term rates. Longer term rates also moved up during the quarter.
Currently we are seeing some fund flows out of large cap U.S. stocks into small cap domestic and small cap foreign stocks, affirming the importance of a diversified portfolio. Where bonds are concerned we think it’s important to keep maturities relatively short and seek out pockets of value, whether it’s governments, munis or corporate bonds.
Global economies still have strength and seem unfazed by political concerns, so we look for continued rising profits across industries and geographies. Valuations seem full in many sectors of the market and locales, so rebalancing thoughtfully seems prudent to us.