March 2021 | Global Equity Markets Review
Global equity markets came into March off a strong February and gathered momentum throughout the month producing the best monthly return to the new year.
The S&P 500 Index returned 4.38% in March as incrementally positive news on the economic rebound continued as did positive statements from the Federal Reserve and passage of almost $2 trillion in additional fiscal stimulus during the month. Mid cap stocks did slightly better with an S&P 400 Mid Cap returning 4.67% while the S&P 600 Small cap lagged at 3.33% after many strong months of outperformance.
A clearer vision of our post-pandemic lives is coming into focus as restrictions are lifted and vaccines are being administered at the current rate of over 3 million per day in the U.S.
This pace of change lifts the spirits of investors and encourages market leadership from cyclical sectors and value-based strategies. Continued leadership from cyclical, small cap and value stocks will be confirmation of an improving outlook for the U.S. economy.
The optimism derived by market leadership is also confirmed in a broader sense by looking at the change in earnings multiples using forward estimates supplied by Wall Street. The chart below chronicles the rate of change in P/E multiples which over short periods can dominate investor returns. This is evident in examining the most recent 52-week period as multiples on estimated earnings have increased 44% while estimated earnings have increased 9%. The current S&P 500 P/E on next 12 months estimates is 22.2x equivalent to the 7th percentile of P/E multiples dating back to December 31, 1999.
Global equity markets lagged the U.S. market in March as economic and vaccination rates domestically outpaced most of the rest of the world. The S&P Developed ex-U.S. Index returned 2.34% in March while the S&P Emerging Markets Index declined -1.55%. Dollar strength contributed to the underperformance of non-U.S. markets as March was the strongest month for the U.S. currency since late 2016. Weakness in emerging markets was evident in the Asian/Pacific region with China leading the way down. This pattern will be monitored closely as history suggests a strong correlation between U.S. and emerging markets moving in the same direction. Worth noting and suggestive of a rebound in emerging markets, the valuation is at a steep discount to U.S. markets and at the bottom of an almost 20-year range.
We remain optimistic about the U.S. economy and the strong echo boom in the coming months from 2020 pandemic lows. However, valuation of domestic equities appears to adequately reflect the good news and leave little room for unanticipated negative events. Attractive discounts are evident in non-U.S. markets and while economic and vaccination progress is trailing behind, the opportunities relative to domestic equities appear more substantial. A diversified portfolio across all international markets continues to be our recommendation for clients wanting to benefit from a global rebound and recovery from COVID–19.
Important Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 3/31/2021 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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