The
Wilshire 5000--the broadest measure of U.S. stocks and bonds--rose 10.91% for
the first quarter--more than half of the strong gains it made last year. The comparable Russell 3000 index rose 11.07%
through the end of March.
The
other U.S. market sectors were also up strongly. Large cap stocks, represented by the Wilshire
U.S. Large Cap index, gained 10.65% in the first three months of the year. The Russell 1000 large-cap index returned
10.96%, while the widely-quoted S&P 500 index of large company stocks
gained 10.03% for the quarter and celebrated a new closing high of 1,569.19 on
the last trading day of the quarter.
(Its all-time high was an intraday peak of 1,576.09, set back in 2007.)
The
Wilshire U.S. Mid-Cap index index was up a robust 13.51% through the end of
March after gaining 16.25% all of last year.
The Russell midcap index was up 12.96% for the quarter.
Small
company stocks , as measured by the Wilshire U.S. Small-Cap, gained 13.11% in
the first quarter. The Russell 2000
small-cap index was up 12.39% in the first three months of the year. The technology-heavy Nasdaq Composite Index
was up 8.21% for the quarter and was depressed from Apple’s poor performance.
There
was remarkable consistency across the industry sectors that make up the S&P
500. Energy stocks rose 9.57%, materials
were up 4.17%, industrials gained 10.08% for the quarter, consumer
discretionary stocks rose 11.76%, consumer staples were up 13.77%, health care
companies rose an aggregate 15.22%, financials gained 10.92%, utilities were up
11.84%, and even telecom services and information technology companies gained
value, up 8.20% and 4.21% respectively.
When
you look at global returns, it becomes clear that U.S. stocks delivered
standout performance compared with the rest of the world. The broad-based EAFE index of larger
companies in developed economies rose 4.38% in dollar terms during the first
quarter of the year. The stocks across
the Eurozone economies eked out a 0.63% gain for the quarter, reflecting
continued uncertainty over whether Spain and/or Italy will require
restructuring help on their government bonds.
Meanwhile, the Far East economies rose 9.18% in the first three months
of the year. In the only truly negative
investment news, the EAFE Emerging Markets index of lesser-developed economies
fell 1.92% for the quarter.
Looking
over the other investment categories, real estate investments, as measured by
the Wilshire REIT index posted a 7.43% gain for the quarter.
Investors
who retreated to the safest bond categories deserve our sympathy, especially if
they are using the coupons for retirement income. Treasury bonds continue to post near-record
low yields. Today, if you lend the U.S.
government money by purchasing a 2-year Treasury bond, your coupon rate is
0.24% a year; lend them a hundred dollars and you get back less than a quarter
every 12 months. Five-year yields are
still below 1% (0.76%), and 10-year (1.85%/year) and 30-year (3.10%) T-bonds
are not in danger of enriching their purchasers. Muni bonds are sporting aggregate yields of
0.24% (1-year), 0.36% (2-year), 0.92% (5-year) and 1.96% (10-year).
It's
hard to believe that the U.S. and global economies are still suffering a
hangover from the Great Recession, but the fact that the Federal Reserve Board
is keeping interest rates artificially low, coupled with still-high
unemployment, makes the case. So, too,
does unusually slow and bouncy economic growth; the U.S. economy, measured by
the Gross Domestic Product, rose at a 0.4% annual rate in last year's fourth
quarter, after a 3.1% gain in the previous three months.
However,
there have been some optimistic signs.
Consumer spending, which accounts for roughly 70% of the U.S. economy,
rose in February by the highest rate in five months, according to the Commerce
Department. Although the gain was still
a modest 0.7%, the fact that people were spending more surprised many economists,
who expected that the two percentage point increase in the payroll tax would
cause Americans to feel poorer when they received their paychecks.
Rising
home values and wage gains across the economy have made it easier for
households to repair their finances.
Incomes were up 1.1% in February and the overall U.S. savings rate
managed to climb from 2.2% to 2.6% despite the increased spending and higher
taxes. Home property values, measured by
the S&P/Case-Shiller Index, rose 8.1% over the past year, the biggest
year-to-year gain since 2006. Inflation
is still low; the core measure which excludes food and fuel costs rose 0.1%
from the prior month, in line with the 1.3% jump in the year since February
2012. And unemployment is finally
trending downward. Employers added a net
355,000 workers in the first two months of the year. Rhode Island, Vermont, California and New
Jersey showed the biggest declines in unemployment rates.
Does
this mean the economic recovery will accelerate, boosting stock prices to
ever-higher levels? Or are today's
record stock prices a sign that the market is about to take a plunge? Alas, only somebody with a working crystal
ball can answer these questions. What we
DO know is that the most successful investors are fearful when everyone around
them is greedy, and greedy when other investors are fearful. For the past year, investors have been
extremely nervous about U.S. deficits and the continuing debt crisis in Europe,
yet stock market returns were excellent last year and unusually high in the
first three months of this year.
All we can say for
certain is that eventually the U.S. economy and the global markets will recover
their mojo, and the Great Recession of 2008 will become a distant memory. Historically, the markets have delivered positive
returns about 70% of the time, which is much better odds than you are likely to
find in a casino.
To Your Prosperity,
Kevin Kroskey
Adapted with permission from Bob Veres’ Inside Information.
Wilshire
index data: http://www.wilshire.com/Indexes/calculator/
Russell
index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp
S&P
index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--
Nasdaq
index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP
International
indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html
Commodities
index data: http://www.standardandpoors.com/indices/sp-gsci/en/us/?indexId=spgscirg--usd----sp------
Treasury
market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
Aggregate
corporate bond rates: http://finance.yahoo.com/bonds/composite_bond_rates
Economic
data: http://www.bloomberg.com/news/2013-03-29/consumer-spending-in-u-s-increases-by-most-in-five-months.html
