In the first quarter, the U.S. stock markets led the world. Large cap stocks, represented by the S&P 500 index of large company stocks gained 10.03% for the quarter and celebrated a new closing high of 1,569.19 on the last trading day of the quarter.
The broad-based EAFE index of larger companies in developed economies rose 4.38% in dollar terms during the first quarter of the year. Meanwhile, the Far East economies rose 9.18% in the first three months of the year. In the only truly negative investment news, the EAFE Emerging Markets index of lesser-developed economies fell 1.92% for the quarter.
Looking over the other investment categories, real estate investments, as measured by the Wilshire REIT index posted a 7.43% gain for the quarter. Investors who retreated to the safest bond categories are feeling some pain. Treasury bonds continue to post near-record low yields. Today, if you lend the U.S. government money by purchasing a 2-year Treasury bond, your coupon rate is 0.24% a year.
It’s hard to believe that the U.S. and global economies are still suffering a hangover from the Great Recession, but the fact that the Federal Reserve Board is keeping interest rates artificially low, coupled with still-high unemployment, makes the case.
However, there have been some optimistic signs. Consumer spending, which accounts for roughly 70% of the U.S. economy, rose in February by the highest rate in five months, according to the Commerce Department.
Rising home values and wage gains across the economy have made it easier for households to repair their finances. Home property values, measured by the S&P/Case-Shiller Index, rose 8.1% over the past year, the biggest year-to-year gain since 2006.
Inflation is still low; the core measure which excludes food and fuel costs rose 0.1% from the prior month, in line with the 1.3% jump in the year since February 2012.
Does this mean the economic recovery will accelerate, boosting stock prices to ever-higher levels? Or are today’s record stock prices a sign that the market is about to take a plunge? Alas, only somebody with a working crystal ball can answer these questions.
All we can say for certain is that eventually the U.S. economy and the global markets will in all probability recover, and the Great Recession of 2008 will become a distant memory.
Historically, the markets have delivered positive returns about 70% of the time.