It was a roller-coaster start to the year, in which solid global equity market gains gave way to a volatility blowup in February, followed by rising concerns of a trade war and a technology-led rout near quarter end. In the end, the S&P 500 Index fell nearly 0.8% for the quarter, marking the first time in 10 quarters that the domestic equity benchmark posted a loss.
The protectionist rhetoric benefited domestically focused small-cap companies the most, while growth-oriented companies notably outpaced their value brethren. Data indicating slowing growth momentum in Europe, coupled with U.S. – China trade frictions, raised concerns among investors in non-U.S. markets. After hitting a 17-year high in December, confidence in Europe declined in each of the subsequent three months on expectations that companies will pare back investments because of Brexit, U.S. trade policies and a stronger (€) euro.
Against this backdrop, international equity markets, as measured by the MSCI EAFE, declined 1.5%, hampered by a 3.9% drop from the UK. A weaker dollar, ample economic growth and healthy corporate earnings yielded positive results for the developing markets, with the MSCI Emerging Markets Index adding 1.4% during the period.
The Federal Reserve continued its rate hike campaign with a 0.25% bump in the Federal Funds rate in March. Fixed income returns were largely negative during the quarter as the yield on the 10 Year Treasury rose over 30 basis points from 2.40% to 2.74%.