Stock Market Monthly returns

The S&P 500 closed the first quarter with a gain of 6.1%, the best quarterly performance since the fourth quarter of 2015, though the last month of the quarter was basically flat. This marked the sixth straight quarter of positive returns for the U.S. stock market and 16 out of the past 17 quarters have been positive. Also in the first quarter the stock market saw very little volatility. At one point near the end of the quarter, the S&P 500 had gone over 100 trading days without a daily drop of more than 1%. The VIX, which is a measure of volatility recorded its lowest level of volatility since 2006.

Internationally, stock prices did even better with the MSCI EAFE Developed Market Index up 7.4% for the quarter, the MSCI Emerging Market Index up 11.5% and the MSCI EAFE Developed Small Cap Index up 8.1%. International returns have trailed the U.S. stock market for the past four years and valuations outside the U.S. are lower. Thus international stock markets could be playing “catch-up” this year vs. the U.S.

Investors, at least so far, this year, remain optimistic over corporate earnings and that the various initiatives promised by the new administration will help to stimulate the economy. First quarter earnings reports will start to be released in the second week of April and run through the end of May. Consensus expectations are calling for around a 10-11% increase in corporate earnings, which if it happens, would be the strongest quarterly increase since the fourth quarter of 2011. While valuations in the stock market are a little elevated relative to historical averages, low levels of interest rates and inflation along with improving corporate profitability seem to justify higher valuations.

The current bull market is slightly over 8 years old now, starting in early March 2009 and has risen over 300%. Yet during this period, the U.S. economy has not grown by more than 2% in any calendar year. Last year, the economy grew 1.6%, its 11th straight year of growth under 3%. So just how important is economic growth relative to stock market returns and can forecasting the economy improve your odds of predicting the returns in the stock market? In our next article, we examine this in more detail and try to provide some perspective.

On the bond side, returns have trailed the stock market, but are still positive for the year. The 10-year government bond yield ended the month at 2.39%, the same level as the previous month and down slightly from the 2.45% at the end of last year. For the quarter, the Barclay’s Aggregate Bond Index was up 0.8% and the S&P National Muni Index was up 1.3%, while the Barclay’s High Yield Index was up 2.97%.