April 3, 2019

The S&P 500 Index gained 13.1% in Q1, the best start to the year since 1998, 21 years! When the S&P 500 has gained at least 10% in Q1, it has risen the last nine months of the year 85% of the time by a median of 7.0% versus a median of 6.2% for all Q2-Q4s since 1926. Stocks beat bonds, with the S&P 500 adding 898 more basis points (bps) than the Bloomberg Barclays Long-Term U.S. Treasury Index (total return).

04-03-2019 SPY


The Nasdaq Composite was the top index out of the twelve we follow, with a 16.5% gain. Like most equity indices, it did most of its work in January. International equities gained, but trailed the U.S. The MSCI EAFE Index and MSCI Emerging Markets Index both gained over 9.8% in Q1. Although it was the best start in four years for the EAFE and eight years for emerging markets, they trailed the S&P 500 by over 300 bps.

Commodities were mixed. The S&P GSCI jumped 16.0%. The benchmark is production-weighted, so the 30.7% surge in crude oil masked weakness elsewhere. The equal-weighted Reuters-CRB gained a more modest 3.7%, while gold gained 1.1%

Growth outperformed Value. At all three market-cap tiers, the Growth index outpaced the Value index, with the Russell Top 200 being the smallest at 427 bps. Small-caps outperformed large-caps, with the Russell 2000 returning 14.6% versus 13.1% for the Russell Top 200. Mid-caps outperformed large-caps and small-caps for the standard indices as well as the Growth and Value benchmarks.

Technology led the way in terms of percent gain and contribution. Tech surged 19.4% in Q1. Its 20.1% weight in the S&P 500 as of 12/31/2018 means that it contributed 390 bps to the index’s 1307 bp gain. Health Care was the weakest sector, but still posted a 6.1% gain. Health Care was the top sector in 2018, so its relative weakness could mean reversion combined with concerns that government regulations could be popular talking points as the 2020 primary season approaches. Financials was the second-worst performing sector. The Fed’s policy reversal means that the yield curve could remain flatter for longer, a negative for Banks’ profitability.

The Weekly Retail Chain Store Sales Index fell 1.2% last week, while the y/y change posted 0.9%, well below trend. Separately, Redbook same-store chain-store sales were unchanged in March, below the target of a 0.3% gain. Sales were up 4.7% y/y, also below the target of 5.0% y/y. Redbook expects sales to pick up in early April with the approach of the Easter holiday.

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