Trade and tech worries hit stocks.

March was a tough month for the markets, with U.S. large-cap stocks in particular taking a hit. Last month was also a stern reminder that market volatility is both normal and unpredictable, as the S&P 500 saw moves of more than +/-1% on nine different days.

Table of Market Index Returns March 2018

The only thing you can predict is unpredicatabilityWhat happened.

Equity markets took a hit in March. Not all classes of stocks fell: U.S. small- and mid-cap stocks actually rose by +2.04% and +0.93% respectively (S&P 600 and 400 indices). U.S. large caps were down 2.54%, however, and they account for more of the market. Foreign stocks didn’t escape either. Developed-market stocks (MSCI EAFE Index) closed down 1.80% and emerging-market stocks (MSCI Emerging Markets Index) dropped 1.86%.

As we look back over the first quarter, we see that domestic large- and mid-cap stocks are down for the quarter but by less than 1%, and small caps are up by less than +1%. Emerging-market stocks are the biggest winners for the quarter, up +1.42%. Developed-market international stocks are down 1.53%.

Market volatility picked up at the end of the month. The S&P 500 Index moved by more than +/-1% on nine different days in March, including five out of the last six days of the month.

Bond yields fell in March, leading the Barclays Bloomberg U.S. Aggregate Index to rise by +0.64%. Yields are up for the quarter, however, and the index is down 1.46%.

Why it happened.

A lot went on in March. And it’s impossible to say which events moved markets and by how much on a given day. As we discuss in this month’s sidebar, market-moving events can’t be predicted. Two of the main drivers of markets this month illustrate this point nicely.

First, talk of imposing tariffs on imports picked up again. Markets (especially large-cap stocks, whose issuing companies tend to have more international business than small caps) responded by dropping. Stocks then moved up and down in reaction to new developments. On March 22 and 23, for example, the S&P 500 fell by 2.52% and 2.10% respectively as the U.S. imposed tariffs on Chinese goods and China retaliated. On March 26, Secretary of the Treasury Mnuchin said he believed the U.S. and China could reach an agreement. That led U.S. large caps to bounce back, rising +2.72% for the day.

The second driver of markets hit later in the month. The tech industry, which has led the market’s growth in 2018, ran into problems. Facebook was hurt by revelations about its use of user data, Tesla by investigations into fatal crashes, and Amazon by critical comments from President Trump. Because tech stocks make up significant part of the market, their declines pulled down the broader market at the end of March.

The economy remained mostly good last month, with continued positive employment news. Wage growth was subdued, however, which helped cool expectations of rising inflation — which in turn affects long-term interest rates. Ten-year treasury rates (the rate of interest the government has to pay to borrow for that period) fell over the month from 2.87% to 2.74%, bucking the recent upward trend. Ten-year rates are now up +0.34% over the year, having started 2018 at 2.40%.

What it means for you.

Portfolio Allocation Pie Chart March 2018

March was a negative month for the markets overall, and your portfolio will probably have seen a negative return. The lower the risk level of your portfolio, the better you’ll have fared in March, as your portfolio will have relatively more bonds than stocks.

It’s important to remember that when you’re investing for retirement, not for short-term gain, we design your portfolio to meet your unique situation and attitude toward risk. A down month can be a good test of your risk tolerance. How did a down month like March feel? If it was more uncomfortable than you’d like, please call one of our advisors or reexamine your risk tolerance by logging into your account. On the phone or online, we’re here to help.