Asset Class Market Cycles (as of 03/31/2012)
U.S. Large Cap Stocks (10/01/2002 - Current)
U.S. Small Cap Stocks (10/01/2002 - Current)
The U.S. equity markets once again posted generally
double digit returns as GDP growth was somewhat stronger
during the fourth quarter. Additionally, consumer confidence
as well as manufacturing activity indicators appeared to
show signs of improvement. The S&P 500 Total Return
Index (S&P 500) returned 12.6%, as the Information
Technology and Financials sectors generally outperformed
on a relative basis while Energy and Telecom stocks lagged.
Even though the global economy is expected to continue
on its slow growth trajectory, uncertainty remains regarding
the near-term direction of the economy and the markets.
Furthermore, the deceleration of economic growth and
market declines experienced during parts of 2010 and 2011
remain relatively fresh in the minds of some investors. As
such, the current market cycle for U.S. Large Cap Stocks
continues to span from “trough to current,” beginning
on 10/01/2002. In general, large cap growth stocks
outperformed large cap value stocks during the quarter, and
continue to slightly outperform their value counterparts over
the current market cycle.
Small cap stocks performed generally in line with their large
cap counterparts with the Russell 2000® Index increasing
12.4% for the quarter. Companies considered higher
quality generally underperformed during the quarter, while
more market sensitive (i.e., higher beta) stocks generally
outperformed on a relative basis. From a sector standpoint,
small cap Consumer Discretionary and Information
Technology stocks generally outperformed, while Utilities
and Consumer Staples stocks posted somewhat weaker
relative returns. Overall, while small cap returns have
been strong over the past several quarters, similar to the
large cap space, investor uncertainty remains widespread
as only six months have passed since the meaningful
market declines during the third quarter of 2011. As such,
the market cycle for U.S. Small Cap Stocks continues to
span from “trough to current,” beginning on 10/01/2002. In
general, small cap growth stocks outperformed small cap
value stocks during the quarter, and continue to surpass
their value counterparts over the current market cycle.
Market Cycle to Date - Current Stage: Bear
$25,000
Market Cycle to Date - Current Stage: Bear
peak
$25,000
$20,000
peak
$18,000
$15,000
$14,000
$10,000
$10,000
trough
11/01/2007
Bear Market
10/01/2002
Bear Market
10/01/2002
trough
06/01/2007
03/31/2012
Current Market Cycle Period
03/31/2012
Russell 2000® Index Quarterly Growth of $10,000
Russell 2000® Growth Index Quarterly Growth of $10,000
Russell 2000® Value Index Quarterly Growth of $10,000
Current Market Cycle Period
S&P 500 Quarterly Growth of $10,000
Russell 1000® Growth Index Quarterly Growth of $10,000
Russell 1000® Value Index Quarterly Growth of $10,000
Previous Bear Market Period
Previous Bear Market Period
$25,000
$20,000
$18,000
$15,000
$14,000
$10,000
$10,000
$6,000
trough
trough
$4,000
$ 5,000
09/30/2002
04/01/2000
Previous Bear Market Period
S&P 500
Russell 1000® Growth Index
Russell 1000® Value Index
04/01/2000
09/30/2002
Previous Bear Market Period
Russell 2000® Index
Russell 2000® Growth Index
Russell 2000® Value Index
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International Stocks (04/01/2003 - Current)
Bonds (07/01/2003 - Current)
The broad international markets only slightly
underperformed their domestic counterparts as the
MSCI EAFE Index returned 10.9% for the quarter.
While sovereign debt issues are expected to generally
persist in Europe for some time, the quarter saw several
developments which appeared to somewhat alleviate
near-term investor concerns. Most notably, the European
Central Bank provided additional support to the region’s
financial institutions while Greece was able to restructure
its sovereign debt as investors agreed to accept longer
maturity bonds. That said, the future direction of global
economic growth remains uncertain as several European
economies are experiencing recessions amidst ongoing
fiscal austerity measures, while others are only growing at
a muted pace. As such, the market cycle for International
Stocks continues to span from “trough to current,”
beginning on 04/01/2003. While international value stocks
generally underperformed international growth stocks
during the quarter, they continue to maintain an advantage
over international growth stocks over the current market
cycle.
The broad fixed income markets were generally flat for
the quarter, with the Barclays Capital U.S. Aggregate
Bond Index up 0.3%. Interest rates generally rose across
the yield curve, with rates at the long end of the curve
rising somewhat more relative to short-term rates. In
general, amidst somewhat improved U.S. economic data,
investors appeared to reduce the likelihood of additional
near-term quantitative easing by the Federal Reserve. As
such, U.S. Treasury securities were generally negative
for the quarter as the BofA Merrill Lynch U.S. Treasury
Master Index declined -1.3%. Likewise corporate bonds
continued to outperform their Treasury counterparts with
the BofA Merrill Lynch U.S. Corporate Master Index up
2.4%. Additionally, as spreads generally narrowed during
the quarter, high-yield corporate bonds meaningfully
outperformed their investment-grade counterparts.
Overall, even though yields generally increased during the
quarter, they remain near historic lows. Likewise, central
banks appear prepared to provide further support to the
financial system if necessary. As such, from an interest
rate perspective, the current fixed income market cycle
continues to span from “trough to current,” beginning on
07/01/2003.
Market Cycle to Date - Current Stage: Bear
Market Cycle to Date - Current Stage: Bull
peak
$30,000
$25,000
8.00%
$20,000
7.00%
6.00%
$16,000
peak
5.00%
$12,000
$10,000
4.00%
Bear Market
3.00%
trough
11/01/2007
04/01/2003
2.00%
03/31/2012
Current Market Cycle Period
1.00%
MSCI EAFE Index Quarterly Growth of $10,000
MSCI EAFE Value Index Quarterly Growth of $10,000
MSCI EAFE Growth Index Quarterly Growth of $10,000
0.00%
Bull Market
trough
07/01/2003
07/01/2006
03/31/2012
Current Market Cycle Period
Previous Bear Market Period
Federal Funds Rate
Merrill Lynch U.S. Corporate Master Yield
Ten Year Treasury Note Yield
$12,000
$10,000
Previous Bull Market Period
9.00%
8.00%
$ 6,000
7.00%
$ 5,000
trough
6.00%
5.00%
4.00%
01/01/2000
EAFE
16000
MSCI EAFE Value
03/31/2003
MSCI
EAFE Growth3.00%
10000
6000
Previous Bear Market Period
MSCI
EAFE Index
5000
MSCI EAFE Value Index
MSCI EAFE Growth Index
2.00%
trough
1.00%
0.00%
07/01/2000
06/30/2003
Previous Bull Market Period
Federal Funds Rate
Merrill Lynch U.S. Corporate Master Yield
Ten Year Treasury Note Yield
Data sources: Wall Street Journal, Morningstar, FactSet, ISI, Inc., Bank of America Merrill Lynch, Credit Suisse
Approved CAG-CM PUB006a.1f (5/12)
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