ON THE HOME FRONT
March saw the first sign of a potential "chink in the armor" for U.S. equities as the S&P 500 finished roughly flat for the month. The S&P 500 Index spent the month of March consolidating recent gains, eking out only a +0.12% gain. The slight gain should not be a surprise following February’s 4.0% gain on top of the 9.0% rally since the presidential election. The Dow Jones Index performed slightly worse for the month, losing -0.72%. The tech heavy NASDAQ Composite was the big winner adding 1.48%.
Negative news originating in our nation’s capital put increased pressure on equity prices. Republican leaders pulled President Trump’s plan to repeal or replace Obamacare, because President Trump could not gather enough support from Republicans or Democrats to insure the plan’s passage. The failure to pass the Republican’s first order of new business brought into doubt the President’s ability to implement his agenda, which triggered a -1.2% decline in the S&P 500 on March 21. The loss ended a streak of 109 trading days without seeing a decline of 1% or more in the index. To put that in perspective, that is the 9th longest streak in history with the most recent being 1995. Other previous record streaks ended in 1985 and the majority took place in the 1950’s and 1960’s.
The disappointment of President Trump’s first setback did not last long. Investor sentiment recognized that the failure to replace or repeal Obamacare would allow the Republicans to fully focus on implementing the President’s other agenda items like overhauling the tax code and loosening regulations. Other investors highlighted the underlying strength of the global economy and the uptick in corporate earnings. Whatever the reasons, the markets finished up almost 1% the last week of the March.
Technically, the market experienced some slight deterioration in price and breadth measures but recovered as the month progressed. Both short and long term trends remain positive. All the major indices are now trading back above their 50- and 200-day moving averages. It is a positive sign to see discretionary stocks establish new highs and smaller cap stocks begin to catch up with large cap stocks.
Over the coming months, the markets will closely scrutinize every news headline, article, and tweet as the President pushes forward with his growth agenda. At times the markets will no doubt over react and volatility will increase. The current trend remains positive, and we believe that the Stadion Funds are well positioned for the current level of risk in the market.
BY THE NUMBERS
It was a benign month for the S&P 500. After spiking almost 1.40% on the first trading day, ensuing performance was lackluster as the index eked out a 0.12% gain in March. As measured by the Russell 2000 Index, small cap stocks had similar returns of 0.13% for the month after a decline of almost 3% mid-month. International stocks fared much better with both the MSCI EAFE (led by Spain and Italy) and MSCI Emerging Markets (led by Mexico) indices gaining over 2.5%. While interest rates seemingly were poised to finally break higher, it was for naught as the mid-month spike reversed course and rates ended up almost unchanged for the month. One of the biggest losers of the month was Oil as West Texas Crude tanked from $54/bbl to $48/bbl, although a late month surge had it close above $50/bbl.
FROM THE FED
Rates trended lower on the benchmark 10-year U.S. Treasury note after rising above 2.60% finishing at 2.40%. Contributing to this decline was the U.K. formally beginning the Brexit process, increasing the demand for safe haven assets. Bond investors also contributed to the decline by increasing skepticism regarding President Trump’s ability to push through his campaign promises for fiscal stimulus that would include a surge in government borrowing.
The threat of the third interest rate increase in two years from the Federal Reserve (Fed) weighed on investors’ minds as spring approached. Investors were forced to weigh the benefits of President Trump’s economic stimulus promises versus the impact of higher rates. Fed Chairwoman Janet Yellen’s comments that the economy could withstand higher rates calmed the markets as the Fed raised short term rates +25 basis points at their March 15 meeting.
Economic releases for the month were mostly positive. The Conference Board reported that March consumer confidence reached the highest level since December 2000 and the 125.6 print topped consensus estimates of 114.0. Gross domestic product increased at a rate of 2.1% in the fourth quarter, down from the third quarter’s 3.5% pace. The core personal consumer expenditures (PCE) index rose 0.2% last month. In the 12 months through February, the core PCE index increased 1.8%. Core PCE is the Fed’s preferred measure of inflation and is running slightly behind their 2% target. However, Core PCE is forecasted to go higher. Even with modest economic growth, the Fed is expected to raise rates at least two more times this year.
Performance data quoted represent past performance. Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. Stadion’s actively managed portfolios may underperform in bull markets. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance data may be lower or higher than the performance data quoted. To review our most recent monthly performance, please visit www.stadionfunds.com.
The S&P 500 Index is an unmanaged index considered representative of the U.S. stock market.
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of prices of U.S. dollar-denominated investment-grade fixed income securities with remaining maturities of one year and longer.
The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The MSCI Emerging Markets Index is an unmanaged free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The MSCI EAFE Index (Europe, Australasia, Far East) is an unmanaged free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
One cannot invest directly in an index. All Benchmarks composite data supplied by third party vendors, assumes re-investment of all dividends.
The U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years.
Yield is the annual return on an investment, expressed as a percentage of the price. For stocks, yield is the annual dividend divided by the purchase price, also known as a dividend yield. For bonds, it is the coupon rate divided by the market price, called current yield.
Diversification does not eliminate the risk of experiencing investment losses.
Brexit is an abbreviation of "British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union.
*Performance numbers as of March 31, 2017
Foreign investing involves special risks such as currency fluctuations and political uncertainty.
ALPS is unaffiliated with Stadion Money Management.
An investor should consider the investment objectives, risks, and charges and expenses of the Stadion Funds carefully before investing. The prospectus contains this and other information about the Funds. A copy of the prospectus is available by calling Stadion Funds directly at (866) 383-7636 or Stadion Money Management, LLC, the investment advisor, at (800) 222-7636. The prospectus should be read carefully before investing.
The Stadion Funds are distributed by ALPS Distributors, Inc.
An investor should consider the investment objectives, risks, and charges and expenses of the Stadion Funds carefully before investing. The prospectus contains this and other information about the Funds. A copy of the prospectus is available by calling Stadion Funds directly at (866) 383-7636 or Stadion Money Management, LLC., the investment advisor, at (800) 222-7636. The prospectus should be read carefully before investing.
The Stadion Funds are distributed by ALPS Distributors, Inc. An investment in the Funds involves risk, including loss of principal.