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.
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%.
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.
1Source: FactSet.
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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.
