Quarterly Recap - 1st Quarter 2013

U.S. equity markets ended the month and quarter on a high note with the S&P 500 finishing March at an all-time historical high. Eclipsing its prior peak of 1,565 set back in October 2007, the broad-based stock index has now completely erased losses from the 2008 financial crisis and ensuing recession. The Dow Industrials first surpassed its 2007 high on March 5th. The S&P 500 advanced for a fifth month and returned 10.6% for the quarter, its best performance in a year. The four-year bull market has driven S&P 500 equity valuations up 132% since its 12-year low in March 2009. Catalysts fueling the rally continue to be the housing market recovery, expanding corporate profits and the unprecedented amount of monetary stimulus from the Federal Reserve. Although the economy remains challenged by a downward trending workforce, signs of a slowdown in consumer spending (from the payroll tax hike and the "sequester" cuts in federal spending) have just not appeared.

Smaller capitalized U.S. companies continue to outperform large-cap stocks as the Russell 2000 Index, a proxy of small-cap equity performance, returned 4.6% during the month and 12.4% on the quarter. Value again edged out growth for both the month and quarter as the Russell 1000 Value Index rose 4% during March whereas the Russell 1000 Growth Index gained 3.8%. For the first quarter, the Russell 1000 Value Index rose 12.3%, while the Russell 1000 Growth Index returned 9.5%. All ten major sector groups gained during the quarter, with Healthcare (+15.8%), Consumer Staples (+14.6%) and Utilities (+13%) advancing the most. Some market watchers grew concerned that this year's top sector performers are all defensive oriented instead of cyclicals (sectors typically biased toward economic growth).

Developed nations outside the U.S. and Canada, as measured by the MSCI EAFE Index, widely lagged domestic indices during both March and the first quarter. Emerging markets, as measured by the MSCI Emerging Market Index, registered a 1.7% loss on the quarter, the worst start to a year since 2008. China's Shanghai Composite lost 1.4% in the first three months of the year, its worst annual start since 2010. Gold prices slumped 4.7% during the first quarter after falling 5.5% in the fourth quarter of last year. Crude oil futures rose a fifth day, ending March with its longest rally this year. The S&P Goldman Sachs Commodity Index, a broad measure tracking 24 commodities, rose 0.6% during the quarter.

In the bond market, the Barclays U.S. Government Bond Index fell for a second quarter, losing 0.16% in the first quarter, its first back-to-back quarterly decline in two years. Yields on 10-year U.S. Treasuries reached an 11-month high of 2.07% on March 11th, before ending the quarter at 1.87%. Treasuries gained during the second half of March on concerns over Cyprus, the fifth European nation to seek emergency bailout aid. At the other end of the credit quality spectrum, non-investment grade corporate bonds outperformed Treasuries, returning 1% in March and 2.9% during the quarter, according to the Barclays U.S. Corporate High-Yield Index. Investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, crept 0.08% higher last month, but lost 0.12% on the quarter. The Barclays Municipals Index finished March with a 0.4% loss, while returning 0.3% on the quarter.

1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
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