A Global Economic Recovery Underway
Market leadership varied over the quarter, with more economically sensitive companies outperforming strongly, particularly during January. Quickly rising U.S. bond yields, coupled with a fourth COVID-19 wave in Europe and Brazil and increasing cases in the U.S., moderated optimism. Higher interest rates put pressure on longer duration, high growth stocks, particularly in the information technology and consumer discretionary sectors in February and March. For the overall period, value outperformed growth, higher beta stocks trumped lower beta stocks, and small caps outpaced large caps. Higher-quality business metrics went unrewarded, as firms with low returns on equity, high debt levels, or having no earnings performed best.
From a sector standpoint, energy and financials were the best performers, returning 18.1% and 11.6%, respectively, as both sectors benefited from rising expectations for stronger global growth. The industrials sector also benefited from the desire by investors to gain exposure to the economic cycle. Unsurprisingly, more defensive areas of the market such as the consumer staples, healthcare, and utilities lagged during the period. Information technology, which comprised about 22% of the MSCI ACWI Index, also underperformed by a wide margin as longer-duration growth stocks were negatively impacted amid sharply rising bond yields. Large contributors to market returns from the last quarter and 2020—such as Apple and Tesla—underperformed in the first quarter.
The commentary is the opinion of SGA. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is not indicative of future results.
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Index definitions:MSCI USA Index measures the performance of the large and mid cap segments of the U.S. market. MSCI AC Asia Pacific measures large and mid-cap equity performance of developed and emerging markets countries in the Asia Pacific region. MSCI All Country World (ACWI) measures equity performance of developed and emerging markets. MSCI EAFE® measures developed foreign market equity performance, excluding the U.S. and Canada. MSCI AC World ex U.S. measures equity performance of developed and emerging markets, excluding the U.S. MSCI Emerging Markets measures equity market performance in global emerging markets. MSCI Europe measures equity market performance of Europe’s developed markets. MSCI Latin American EM measures equity performance of Latin America’s emerging market countries. Indexes are free float-adjusted market cap-weighted and calculated on a total return basis with dividends reinvested.