One Quarter Down, 39 To Go
The first quarter of a new decade came to a close today. As is usually the case, quarterly numbers mask the volatility and are meaningful only to those who stayed fully invested for the whole quarter. Preliminary figures show the S&P 500 gained +4.9%, not including dividends. The MSCI EAFE index of non-US developed markets rose +1.3%, mainly due to Japan and other Pacific benchmarks rather than Europe. The Barclays Aggregate Bond Index was up +1.6% while the Reuters/Jefferies CRB commodity index fell -3.5%. Generally speaking, it was a good quarter for both stocks and bonds but the ride was certainly rough at times.
Taking a closer look at domestic sectors, the quarterly leaders were Industrials, Consumer Discretionary and Financials, all of which turned in double-digit percentage gains. Utilities lagged behind, with the Dow Jones Utilities Average dropping -4.8%. From a global perspective, the strong U.S. performance was outpaced by Japan, where the iShares MSCI Japan ETF (EWJ) gained +7.2%. To no one’s surprise, the European Union was at the bottom of the barrel. The iShares MSCI EMU (EZU) dropped -4.1%.
Currencies were a major influence during the quarter. The Euro lost more than 6% against the U.S. Dollar. Conversely, the Japanese Yen and even the Mexican Peso were strong compared to the greenback. Gold bullion ended the quarter at $1112, roughly where it began.
After beginning 2010 at 3.81%, the ten-year treasury yield closed today at a nearly identical 3.83%. Interest rates popped higher in the last week of March as the Treasury continued aggressively selling debt to finance the government’s activities. Corporations are also back on the debt bandwagon, issuing new bonds at a rapid clip. Executives appear to have learned the key lesson of the credit crisis: Borrow when you can, not when you must.
This week will end with Good Friday, which is a market holiday but not a federal holiday. Hence the Department of Labor’s monthly employment report will come out while U.S. and many global markets are closed. We actually view this as a positive; maybe people will take a few minutes to think about what the numbers mean before they buy or sell. Nonetheless, it could make for an interesting open on Monday. This mornings ADP jobs report suggested that the pace of job loss is slowing but expansion is not here just yet. Maybe the next quarter will bring better news.
Technology and Telecom swapped places in our sector rankings, as did Consumer Staples and Health Care. Relative positions stayed the same otherwise, although all sectors lost momentum from the prior week. Consumer Discretionary held on to the top spot and widened its lead over Industrials. Last week we mentioned that Health Care received a boost from passage of reform legislation, but the celebration ended after only a few days. Health Care was one of the weakest performers, with only Telecom doing worse. Energy slipped back into a downtrend.
Don’t try too hard to find differences in the Style rankings, because there aren’t any. Relative positions are the same as they were last week, with Small Value on top and Mega Cap at the bottom. As we predicted, momentum values had reached unsustainable levels and all the categories pulled back. The last significant equity correction was in January, so it will be interesting to see whether (and how) the relative rankings change when the next break comes.
Pacific x-Japan and the U.S. swapped places in our global rankings. Canada is still on top, but the three leaders are all within a point of each other. Canada may again widen its lead if the recent commodity weakness has run its course. Europe is still in the basement, but it at least managed to flip its momentum reading from -1 to +1 this week. China also picked up a little buying interest.
The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.
“Can you hear me now?”
Verizon Test Man
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