Lack of market volatility, coupled with solid returns, marked a contrast with the first quarter of 2016, which was characterized by negative returns, and high volatility. The S&P 500® Index enjoyed a 109-day streak without a 1% decline—the longest stretch in 22 years. That same index also went 55 days without a 1% positive or negative move. The smooth path of returns may surprise the casual observer since there has been no shortage of news headlines, from a flurry of executive orders in January to the Fed’s rate hike in March.
Larger stocks outperformed small- and mid-cap stocks for the quarter, and international returns were robust as the six-year old dollar rally took a breather during the quarter. Within this context we delve into some big-picture developments: a very short-term oriented focus of many investors, as well as the long-term demographic trends that influence economic growth. We also examine whether the so-called “death of retail” is in fact a premature announcement, and lastly we dissect the trade deficit.
It has often been said that investing is a marathon, not a sprint, and during a marathon it is crucial for participants to constantly monitor their status. Each investor has their own target asset allocation needed to reach their long-term goals. It would be easy to be lulled into complacency given the stock market’s recent lack of volatility, but we believe investors, like marathon runners, are best served looking ahead, rather than behind. We therefore recommend reassessing stock positions as a result of the prolonged equity bull market. Success in investing demands taking profits in asset classes that have performed well and reinvesting the proceeds back into asset classes with greater prospective returns.