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Yes, it really was. 2019 started with a bang. The U.S. equity market just finished its best first quarter in 21 years!1 The S&P 500 Index posted its best quarterly return since the third quarter of 2009, when the market was in recovery-mode after the Global Financial Crisis.

After the sharp sell-off during the fourth quarter last year, the S&P 500 Index has had almost the same magnitude in its rebound, returning 13.6% during the first quarter of 2019. Technology and other growth-oriented sectors participated in the recovery, yet there were more market sectors outperforming, allowing for more market participation.

With more stocks participating in the rally than just the giant tech stocks, the capital concentration risk metric in the U.S. market on the Intech Equity Market Stress Monitor™ is showing signs of stabilizing after being in an upward trend for more than three years. Whenever concentrations are extreme – not only high, but also low – it should be taken as a warning that a return to the norm may shock the market and be a source of volatility.

Capital concentration in large-cap growth stocks in the S&P 500 Index is slightly decreasing relative to the fourth quarter last year, while concentration in small-cap value stocks is increasing - moving toward median levels, a sign of stabilization in the market.

Capital Concentration

On the other hand, correlation of returns, which measures excessive groupthink, exhibited a general increase across many equity indexes. On the S&P 500 Index that measure is now right at median levels when compared to historical observations, reflecting some normalization. Although less dramatic, non-U.S. developed and emerging markets show a similar trend in correlation of returns.

Index efficiency, another risk metric in the Intech Equity Market Stress Monitor™, fell to median levels from historical high levels in many markets during the quarter. There’s now more potential benefits to using diversification to achieve above-market outcomes with less risk.

Equity market returns year-to-date were in the double-digits for virtually all developed market indexes and just shy for emerging markets. The Russell 1000 Growth Index gained the most, returning 16.10%; the S&P 500 Index gained 13.65%, the MSCI World Index rose 12.65%, the MSCI EAFE Index returned 10.13% and the MSCI Emerging Markets Index gained 9.95%. 

Year-to-date Equity Market Returns

As we enter the second quarter of 2019, the risk metrics tracked by the Equity Market Stress Monitor™ show the global and the U.S. equity markets with the least amount of market stress relative to other segments. Non-U.S. developed indexes, particularly MSCI Europe Index, continue to demonstrate more strain.

Intech has been studying the market stability for decades. Rather than rely solely on backward-facing measures, such as standard deviation, investors can monitor market stability, looking at five well-assorted risk metrics and how they sit relative to their historic ranges.

 

Quarterly Report  Download the latest Intech Equity Market Stress MonitorTM update. Download Now

 

1Source: FactSet.

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The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund. Nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. The views are subject to change at any time based upon market or other conditions, are current as of the date indicated, and may be superseded by subsequent market events or other conditions. The information, analyses and/or opinions expressed are for general information only, and are not intended to provide any specific financial, economic, tax, legal, investment advice, or recommendations for any investor. It should not relied on as the sole basis for investment decisions. While every attempt is made to ensure that all information is accurate, there is no representation or warranty, express or implied, as to the accuracy and completeness of the statements or any information contained in this webcast. Any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Past performance is no guarantee of future results. Investing involves risk, including fluctuation in value, the possible loss of principal, and total loss of investment.