Market Reflections for First Quarter 2017

Markets chugged along nicely in the first quarter of 2017, with global equities and bonds all turning in positive returns. Robust economic data from the U.S., as well as optimism about the new administration’s economic policies, were among the factors cited for the U.S. markets’ continued rally. With all the focus around domestic news, the strong resurgence of international-developed and emerging-markets equities is a boon to globally diversified portfolios that must not be overlooked!

The S&P 500 Index of U.S. large-company stocks gained +6.1% in the first quarter. In a reversal from last quarter, small-cap stocks, represented by the Russell 2000 Index, lagged large-cap stocks, returning just +2.5%. Growth stocks, buoyed by the strong performance of the technology sector, outperformed value stocks in the large- and small-cap segments of the U.S. market (the Russell 1000 Growth Index was up +8.9% versus the Russell 1000 Value Index’s return of +3.3%).

U.S. Stock Market Chart for First Quarter 2017
Returns shown in the chart above are for the first quarter of 2017.

As noted earlier, international stocks had a very strong quarter, with the MSCI EAFE Index returning +7.2%. The outperformance of growth stocks relative to value stocks carried over to international- developed markets; the MSCI EAFE Growth Index returned +8.5% for the quarter versus the MSCI EAFE Value Index’s return of 6.1%. However, the real standout performers this quarter were emerging-markets stocks, which delivered double-digit returns; the MSCI Emerging Markets Index returned +11.5%. U.S. investors in international stocks were also helped by the dollar depreciating against most major currencies, which added to their returns in US$ terms.

World Asset Classes Chart for First Quarter 2017On the fixed-income side, the Fed raised rates in March; however, the impact of this rate hike was fairly muted, resulting in a slight flattening of the yield curve. At the shorter end of the curve, the 2-year Treasury note yield inched up seven basis points over the course of the quarter from 1.20% to 1.27%. At the longer end of the curve, the 10-year Treasury note yield declined by five basis points, ending the quarter at 2.40%. Overall, intermediate bonds were up for the quarter, with the Barclays Aggregate Index of domestic investment-grade bonds gaining +0.8%. Municipal bonds fared even better, with the Barclays Municipal Bond Index gaining +1.6%.

Both segments of diversified fixed income delivered solid returns. High-yield bonds gained +2.3% for the quarter, as credit spreads continued to narrow. Emerging-markets bonds, helped by a declining dollar, logged in an impressive +6.5% (JPM GBI-EM Global Diversified Index UH).

In 2016, investors experienced the benefit of maintaining exposure to small-cap and value stocks, whereas in the first quarter of 2017, they saw the benefit of maintaining an allocation to both international-developed and emerging-markets stocks. We don’t know what the future holds for the financial markets, but we do know that maintaining a diversified portfolio is a time-tested recipe for long-term success!

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.
Rafia Hasan
Rafia Hasan

CFA, CFP® | Director of Investments

Rafia Hasan, CFA, CFP®, is the Director of Investments for Hewins Financial Advisors, based in Chicago, IL. Rafia is a member of Hewins' Investment Committee and has a deep knowledge of the financial markets, specifically in the areas of alternative investments and private equity. She also specializes in personal financial planning and estate planning for women investors.

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Market Reflections for First Quarter 2017

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