First Quarter 2007 Review
By Stephen Smith
May 2nd, 2007
The overall performance of the broad market in the first quarter has been close to historical norms for bonds and below historical norms for equities.
The first quarter forecasted below trend economic growth and moderating inflation which created a bond friendly environment. Bonds posted positive first quarter total returns in the 1.2% to 1.6% range. U.S. equities posted first quarter total returns in the -0.3% to 1.9% range.
International equities had the best first quarter returns in the 2.3% to 4.1% range. The emerging markets have had a nice gain but can show a lot of volatility as we saw in early March when China's Shanghai Composite dropped nearly 10% in one day.
The best performing sectors were Utilities, Telecommunication Services and Materials. they gained 9.3%, 7.3% and 9.0% respectively. Strong earnings and continued growth of customers using wireless technologies enhanced the performance of the Telecommunication Services sector, while international infrastructure expansion helped support strong performance of the Material sector. The worst performing sectors in the first quarter were the Consumer Discretionary, Information Technology and the Financial sector. They lost 0.7%, 0.9% and 2.8% respectively. This was largely due to concerns over consumer spending, slow capital expenditures of businesses, and the effects of the sub-prime deterioration.
Equities have been dominating headlines with the Dow Jones Industrial Average reaching historic highs in the month of April by closing above 13,000 for the first time ever. The S&P 500 is near a 6-year high and roughly 2% below an all-time high. While these milestones are noteworthy, their significance is perhaps more psychological than fundamental.
