Market Overview | First Quarter 2015

If you missed our market overview of Fourth Quarter 2014, click here.

The S&P 500 notched its ninth consecutive quarterly gain in the first quarter of 2015, rising 1.0%. Even stronger returns were achieved overseas and in smaller cap stocks, in contrast to what we saw in 2014. While the U.S. Federal Reserve appeared to be edging closer to raising short-term interest rates, domestic economic indicators remained mixed, and the Fed lowered near-term growth and inflation expectations. Corporate profits felt the effects of a stronger dollar and its impact on companies that do business abroad.
Oil prices continued to decline, as U.S. crude fell 10.6% and Brent Crude fell 3.9%. The S&P GSCI™ (commodity index) lost 8.2%.

In March, the European Central Bank (ECB) initiated its bond-buying program to stimulate growth and inflation, and European bond yields continued their downward trajectory. Yields on 10-year German and French bonds stand at .18% and .48%, respectively. In the U.S., the 10-year Treasury yield fell from 2.17% at the beginning of the year to 1.93% by March 31. The Barclays Aggregate bond benchmark rose 1.6%. The U.S. dollar remained strong in the wake of European and Japanese easing, gaining 6% against a basket of currencies. The euro declined 11% against the dollar.

Markets Q1 2015

For the second quarter in a row, small cap outperformed large cap; the Russell 2000 Index of small-cap stocks rose 4.3%. The largest stocks turned in a negative result of -.5% (Russell Top 50). From a style perspective, growth stocks outpaced value stocks by a good margin in the U.S. and overseas. The negative value premium was largest in the U.S. Within the S&P 500, Health Care (+6.6%) and Consumer Discretionary (+4.8%) stocks led the way, while Utilities (-5.2%) and Energy (-2.9%) stocks lagged.

Q1 2015 World Asset Classes Returns

After trailing their U.S. counterparts for the past two years, international stocks bounced back in the first quarter. Developed-country stocks advanced 4.9% in US$ terms and were even stronger on a local currency basis (+10.9%). Many countries saw new highs during the first quarter. Germany soared 22.0% locally, which translated into an 8.28% result for U.S. investors given the euro’s weakness. Japan was up 10.2% (US$ and local).
Emerging markets trailed developed markets but were ahead of the U.S. with a +2.3% return (US$). Russia saw two interest rate cuts during the quarter and recovered 18.6% (US$) after last quarter’s 32.8% (US$) decline. Stocks in Greece fell 29.3% (US$), as the nation’s new government sought an extension on debt payments.

Returns on unhedged international bonds suffered again this quarter from currency weakness overseas. Developed-country bonds (Barclays Global Aggregate ex-U.S. Unhedged) lost 4.6%, and emerging markets (JPM GBI-EM Gl Div UH) fell 4.0%.
High-yield bonds in the U.S. produced a better result, rising 2.7%.

Following a period in which U.S. large-cap stocks and bonds were dominant within the investment landscape, the first quarter again showed the value of broad diversification in a portfolio. Small-cap and international (developed and emerging) stocks outperformed U.S. large cap; high-yield bonds outperformed investment grade. This may not be the case every quarter any more than U.S. outperformance will be. But a diversified portfolio that includes an appropriate mix of asset classes across the globe allows investors to capture those returns, wherever they occur.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Martha Post
Martha Post

CFA | Principal, Chief Operating Officer

Martha Post, CFA, is a Principal and the Chief Operating Officer for Hewins Financial Advisors, based in Redwood City, CA. Martha oversees Hewins' operations and client service activities and also serves as a member of its Investment Committee, with nearly 30 years of experience in investment management, research and analysis.

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Market Overview | First Quarter 2015

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