After advancing strongly in January and well into February, US stocks wobbled early in March against a backdrop of economic and geopolitical pressures. Near mid-month, the disastrous earthquake and tsunami in Japan, fears that damage to the Fukushima-Daiichi nuclear power plant might escalate into a major environmental catastrophe, news of the continuing conflict in Libya, and rising oil prices combined to send the market into full retreat. By March 16, the S&P 500 Index had given up its entire advance for the year. Yet in spite of continuing nervousness about Japan and Libya, the market turned around again, with support from promising economic indicators, especially concerning a nascent recovery in employment. Over the full course of a volatile March, the S&P 500 returned +0.04%, bringing its return for the first quarter to +5.92%. The Mid-cap 400 index returned +2.45% (+9.36% year to date), and the Small-cap 600 index returned +3.01% for the month (+7.71% so far this year). Growth did better than value in all capitalization ranges. [Index returns: Standard and Poors]
While global developed equity markets generally fell along with the US market in the first half of the month, they did not quite track the US market’s recovery in the second half. The MSCI Barra EAFE international equity index ended the month with a return of –2.86% in local currencies. So far in 2011, the index has returned +0.99%. At the height of the fears over the damage to the Japanese nuclear power plant, the yen (counter-intuitively) rallied strongly, but coordinated central bank intervention and a somewhat improved outlook reversed the rally. For the month, the US dollar gained against the yen, ending at 82.76 yen, compared to 81.94 a month earlier. The dollar also improved to $1.605 against the pound Sterling (from $1.625 a month earlier), but it fell to $1.418 against the euro, from $1.379 at the end of Feburary. The overall currency effect was modestly favorable to US investors, and EAFE returned –2.24% in US dollars (+3.36% year to date). [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]
Equity markets first fell and then rose during March, and so did interest rates. In the end, US Treasury yields rose a bit, with shorter rates rising a little more strongly, flattening the yield curve. The yield on the two-year US Treasury note increased to 0.80% (from 0.69% at 2/28), while the yield on the ten-year ended February at 3.47%, up from 3.42% a month earlier. The bond market’s return reflected the slight increase in rates, as the Barclays Capital US Aggregate Bond index returned +0.12% (+0.68% for the quarter). [Index returns: Barclays Capital. Treasury yields: US Treasury].