March saw a turn toward more stable, less cyclical, yield-and-cash-flow plays as bond yields rushed lower and global growth remained wobbly.
Hearing the superlatives applied to Wall Street's fast start — the S&P 500 up 13 percent, its best first quarter in 21 years — might leave the impression the bulls have routed the doubters decisively.
Those observers who defer strictly to the"message of the market" argue this defensive turn — combined with a furious bond rally and sudden outcry for a Federal Reserve rate cut — is a stark warning about heightened risk of recession and corporate-profit downturn. Just to detail the market's defensive emphasis in recent weeks, among the industry groups with the highest proportion of stocks in a confirmed uptrend, defined as having a 50-day average price above its 200-day, are utilities, software, real estate and household products. Featured among the weakest: energy, autos, banks and transportation.
A conservative approach has been nicely rewarded. The classic 60 percent stocks/40 percent bonds portfolio has done unusually well. The Vanguard Balanced Index fund , which pursues roughly this approach, has a 9.5-percent total return this year, its best quarter in nearly a decade." The largest in the latter category, iShares Edge MSCI Minimum Volatility ETF has grown to $23.5 billion in assets, as investors embrace a portfolio constructed to be less jumpy than the S&P 500 yet has dramatically outperformed it. The fund is at a record high, more than 2 percent above its September peak, even as the S&P itself remains more than 3 percent below its September best.
The bulls can lean on a few things. Very strong first quarters have tended to continue higher at least a bit through the year. Semiconductors are among the few"risk-on" groups leading things. The pullbacks, as noted, have been muted.
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