Let’s face it, the market volatility we have experienced over the past few months has been just as uncomfortable as the weather here in Ohio. Even though it is officially spring, we experienced snow showers last week in among some warm, lovely 70 degree days, which is not too unlike the market action we have seen. Despite the uncomfortably high volatility in the market, it is important to note that we have not seen any substantial leadership changes at this point. In our Dynamic Asset Level Investing tool, otherwise known as DALI, US Equities remain planted in the #1 position, just as they have since August 2016. At this juncture, the spread between the #1 ranked asset class, US Equities, and the #2 ranked asset class, International Equities, has narrowed to just 13 signals. This is a relationship we have been watching closely, and one that we will continue to monitor.
From a sector perspective, Precious Metals, Oil, and Electric Utilities have shown near-term improvement; however, Technology and Healthcare have had the best year-to-date returns. Technology and Financials remain the top two domestic sectors in DALI as they were throughout 2017. Conversely, Oil Services, Real Estate, Gas Utilities, Building and Media have been the primary laggards, from a year-to-date return perspective.
Commodities, which ranks third in DALI, is the most improved asset class from a signal perspective, gaining 10 signals since the beginning of March. The improvement within Commodities has been led by Energy, with Gasoline and Crude being among the top three performers year-to-date. Cocoa has been the primary driver in Softs, and Cotton is also positive on a year-to-date basis.
Fixed Income remains behind Commodities as the fourth ranked asset class in DALI, as they have since the beginning of February. There was some downward pressure on yields further out on the curve in March, as the yield on both the 10- and 30-year U.S. Treasuries declined during the month, a reversal of the trend we had seen in the first two months of the year. Meanwhile, as expected, the Fed increased the target for the federal funds rate following its March meeting, putting upward pressure on shorter-term yields. This caused the yield curve to flatten – the spread between the two- and 10- year Treasury decreased by 12 basis points from March 1 to March 29.
The first quarter of 2018 is now in the rear view mirror, and as we move through the remainder of the year, we will continue to monitor the markets for any potential changes in leadership and identify potential opportunities that may emerge.
Until next time, cheers!
Jim