U.S. stocks finished the first quarter on a down note on Friday but not nearly enough to spoil the big gains for the first three months of the year.
NASDAQ was by far the best performer among the three major American indexes in Q1, rising nearly 10% in price after gaining another 1.4% last week and 1.5% in March. That easily beat the tech-heavy index’s performance for all of last year, when it gained less than 9%, including dividends. The S&P 500 gained 5.5% in price for the quarter, its best quarterly gain since the end of 2015, following a modest gain in March. It rose 0.8% last week. The Dow was up 4.6% for Q1 despite slipping 0.7% in March; it gained 0.3% last week.
Foreign stocks also did well in the first quarter, for the most part. The Stoxx Europe 600 rose 5.5% for the quarter in euro terms, more than half of the gain coming in March. Indian and Hong Kong stocks led the way in Asia, rising 11.2% and 9.6%, respectively, in Q1. Japan was one of the few markets to post a losing quarter, at least in local currency terms.
After reaching three-year highs just a couple of weeks ago, long-term U.S. Treasury bond yields ended the quarter lower than where they began the year. The benchmark 10-year note closed the quarter at about 2.40%, while the 30-year bond finished at 3.01%, both down about five basis points year to date. Yields held pretty steady during the week despite comments from several Federal Reserve regional bank presidents that the Fed may raise interest rates as many as four times this year, slightly more than the central bank has previously indicated. Yields on foreign bonds were mostly higher for the quarter, particularly in Europe, where the economy is finally starting to gain traction. The yield on the benchmark 10-year German bund, for example, ended the quarter higher by 12 bps, while yields on comparable Italian and Spanish bonds were up by more than 25 bps.
There was a bevy of U.S. economic reports released last week, most of which continued to come in positive. Fourth quarter 2016 GDP was revised slightly upward to show 2.1% annualized growth. The same report said after-tax corporate profits rose 3.7% from the third quarter and a robust 22.3% from the year earlier period, the biggest year-on-year gain since the first quarter of 2012. Personal incomes rose another 0.4% in February after climbing an upwardly revised 0.5% in January, although personal spending rose only 0.1%, down from the prior month’s 0.2% increase. The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, rose 0.1% in February but 2.1% compared to a year earlier, the first time the index exceeded the Fed’s target of 2% in nearly five years.
Consumer confidence indexes were somewhat mixed. The Conference Board’s index jumped nearly 10 points in March to 125.6, its strongest reading since December 2000, while the University of Michigan’s barometer ended the month at 96.9, up from the prior month but down slightly from the mid-March reading. Housing figures also remained strong. The National Association of Realtors’ pending home sales index rose 5.5% in February from the prior month to 112.3, its highest level since April 2016 and the second-highest reading since May 2006. The group attributed the gain to unseasonably warm weather, an increase in listings, an improved job market, and higher interest rates, which are prodding buyers to act. Meanwhile, home prices continued to rise. The S&P CoreLogic Case-Shiller 20-city home price index jumped 0.9% in January from the prior month and 5.7% compared to a year earlier, the strongest increase in 2 ½ years.
Reports/dates/facts/links worth paying attention to over the next week:
1. April 3: Construction spending for February; ISM manufacturing index for March.
2. April 4: Factory orders for February; auto sales for March.
3. April 5: ISM non-manufacturing index for March; ADP national employment report for March; minutes of the Federal Reserve’s March 15 monetary policy meeting are released at 2:00 PM EST.
4. April 6: Weekly unemployment claims.
5. April 7: Employment situation for March; consumer credit for February.