U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return of -0.8% for the 13 weeks ending March 31, 2018. U.S. stocks outperformed international for the quarter as measured by the All Country World Index ex-U.S. stocks, a representation of international stocks outside the U.S. Total return for the 13 weeks ending March 31, 2018, was -2.0%.
A change in leadership at the Federal Reserve Bank increased fears of an accelerated pace of interest rate increases in the U.S. This uncertainty drove investors to international stocks, which outperformed U.S. stocks from January first through March 9th. On March 9th, however, Donald Trump signed orders to impose tariffs on imports of steel and aluminum, prompting a sharp drop in international shares versus U.S.
Latin America and Malaysian shares led international markets, up 7.2% and 4.7% respectively. Brazil’s economy, Latin America’s largest exposure, increased 2.1% in the fourth quarter, driving an annual expansion of 1.0% for 2017, which marked the first year of positive growth, following two years of retraction.
U.S. Sectors
Top performing U.S. sectors for 13 weeks ending March 31, 2018, by total return included Technology (+3.7%), Consumer Cyclical (+3.4%) and Financial Services (+0.4%). Laggards for the 13 weeks include Real Estate (-6.2%), Communications (-6.6%) and Consumer Defensives (-6.2%). The “risk-on” trade, characterized by growth-oriented investments versus defensive sectors, was strong again for the full first quarter as confidence of U.S. economic recovery remained strong.
Technology and Consumer Cyclical shares, led by Amazon, continued to roar into 2018. In March, however, a sharp turnaround ensued as Facebook and Amazon came under pressure. The possibility of government regulations coupled with inflated valuations placed a cloud over the sector. U.S. technology stocks were the worst performing sector for March, down 3.6%. Financial Services, another leader for the past year, was close behind technology in March (down 3.4%).
Dividend-paying stocks with lower valuations led the way in March. U.S. Real Estate increased 4.0%, Utilities 4.0% and Energy 2.2%. Investors are grappling with where they want to place their money coming into the second quarter. Stocks with lower valuations are starting to get some traction.