Was it really the best quarter for 21 years?



​Global equities have enjoyed one of their best starts to a year in 2019. Valerie Azuelos, Managing Director at Intech, explains what Intech’s proprietary risk metrics say about stocks now.

Yes, it really was one of the best starts to a year for global equities. 2019 started with a bang.

The S&P 500 Index just finished its best first quarter since 1998!1 In addition, the index posted its best quarterly return overall since the third quarter of 2009, when the market was in recovery mode after the Global Financial Crisis.

After the sharp sell-off during the fourth quarter last year, the S&P 500 Index rebounded with nearly the same magnitude, delivering a total return of 13.7% in US dollar terms during the first quarter of 2019. Technology and other growth-oriented sectors propelled the recovery, yet more market sectors outperformed than in previous quarters, allowing for greater market participation.

With more stocks participating in the rally, the capital concentration risk metric in the Intech Equity Market Stress Monitor™ is showing signs of stabilising after being on an upward trend for more than three years. Whenever concentrations are extreme – not only high, but also low – it should be taken as a warning that a return to the norm may shock the market and be a source of volatility.

Our metrics show that capital concentration in large-cap growth stocks in the S&P 500 Index is decreasing slightly, relative to the fourth quarter last year. Meanwhile, concentration in small-cap value stocks is increasing, moving toward median levels, a sign of stabilisation in the market.

Intech Equity Market Stress Monitor - Capital concentration

Source: Intech Equity Market Stress Monitor™, as at 31 March 2019.

On the other hand, correlation of returns, which measures excessive groupthink, exhibited a general increase across many equity indices. For the S&P 500 Index, that measure is now right at median levels when compared to historical observations, reflecting some normalisation. Although less dramatic, non-US developed and emerging markets show a similar trend for correlation of returns.

Index efficiency, another risk metric in the Intech Equity Market Stress Monitor™, fell to median levels in many markets during the quarter from historical high levels. The potential to use diversification to achieve above-market outcomes with less risk is now higher.

During the quarter, total returns for virtually all developed market equity indexes were in the double digits and just shy for emerging markets. The Russell 1000 Growth Index gained the most, returning 16.1%; the S&P 500 Index gained 13.7%; the MSCI World Index rose 12.7%; the MSCI EAFE Index returned 10.1%; and the MSCI Emerging Markets Index gained 10.0% all in US dollar terms.

Year-to-date equity market returns

Source: Factset. Cumulative return, as at 31 March 2019.

As we enter the second quarter of 2019, the risk metrics tracked by the Intech Equity Market Stress Monitor™ show that global and US equity markets exhibit the least amount of risk relative to other segments. Non-US developed indexes, particularly the MSCI Europe Index, continue to demonstrate more strain.

Intech has been studying market stability for decades. Rather than rely solely on backward-facing measures, such as standard deviation, investors can monitor market stability by noting where an index’s risk sits relative to its historical ranges.


1Source: Factset, as at 31 March 2019.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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