Clearview Portfolio Consulting March Market Recap
Key Points:
• Markets across the globe sold off as the war in Iran caused oil prices to climb.
• S&P500 dropped 5% in March, but outperformed international equity indices.
• Fears of elevated inflation pushed bond yields higher as the market began questioning additional interest rate cuts.
The markets experienced a bout of volatility in March, as the war in Iran has created economic angst across the globe. The bottleneck in the Strait of Hormuz, which is being threatened by Iran is causing oil prices to rise. Each day, roughly 20% of global oil consumption flows through the Strait and the decrease in supply has oil prices moving significantly higher. The price per barrel increased from $57 to $102 in the three months to start the year. Uncertainty around the supply of oil and how the war in Iran will end is causing investor anxiety in both stocks and bonds. Here in the US, we are seeing increasing prices at the pump for consumers, even though we are less reliant on energy imports. The threat to consumer spending has increased the prospects of a recession this year, but the US economy still seems to be in decent shape.
The S&P500 had a rough month, dropping 5% and putting the index in negative territory for the year. Energy was the top performer and the only positive sector in March, gaining 10% as elevated oil prices moved energy stocks higher. Industrial stocks (-8%), health care (-8%), and consumer staples (-7%) were the worst performing sectors of the market. Value stocks outperformed growth stocks across the market cap spectrum. International equities fared worse than the US as emerging markets dropped 13% while developed international stocks dropped over 10%. The US is less vulnerable to energy shocks than in the past as we have become a net energy exporter, but oil trades as a global commodity. Countries and regions relying heavily on energy imports from the Middle East were hit hard with stock indices from Korea (-25%), South Africa (-19%), and India (-15%) faring the worst.
The bond market was not immune to the pressures from the war as higher energy prices led to higher yields. The Bloomberg US Aggregate Bond Index dropped 1.8% in March as yields rose across the Treasury Yield Curve. The market questioned whether additional rate cuts would happen this year as inflation expectations moved higher. The timing for the resumption of oil exports from the Middle East and the subsequent reduction in energy prices remains uncertain. The longer the conflict goes without a resolution, the heavier it will weigh on the global economy. Trying to predict when this all will end is an impossible task, but history has shown staying invested during times of higher volatility is best for long-term globally diversified investors.
Sources: Morningstar Direct, Wall Street Journal, Merrill Lynch, Guggenheim