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Swing Time
Plus Q1 2018 Market Report

John Gorlow | Apr 17, 2018

After a remarkable climb in 2017, the market turned volatile in the first quarter of the new year. The swings were dramatic, including a drop in the Dow of 1,175 points on February 5. The U.S. stock market suffered one of the swiftest 10% slumps in history, and global equities lost $4.2 trillion that week. In terms of dollars, that’s more than the total losses suffered by the Nasdaq when the dotcom bubble burst. What’s next? Nervous investors are looking for signs and signals. Of particular interest will be Q1 profits. Other areas of concern include slower growth in China, tightening monetary policy, trade wars, a spike in wage growth and interest rate hikes. But despite a mountain of forecasting data, the market is unpredictable. A proven investment strategy is still your best defense. More about that after a look at Q1 numbers.

First Quarter 2018 Index Returns

(Courtesy of DFA)


World Asset Classes

Looking at broad market indices, emerging markets outperformed developed markets, including the US, in the first quarter. The value effect was positive in emerging markets but negative in developed markets, including the US. Small caps outperformed large caps in developed markets, including the US, but underperformed in emerging markets.

 Asset Class QTD 
 MSCI Emerging Markets Value (net div.)
 MSCI Emerging Markets Index (net div.)
 One-Month US Treasury Bills 
 MSCI Emerging Markets Small Cap Index (net div.)
 Russell 2000 Index
 MSCI World ex USA Small Cap Index (net div.)
 Russell 3000 Index
 Russell 1000 Index
 S&P 500 Index  -0.76
 MSCI All Country World Ex USA Index (net div.)  -1.8
 S&P Global ex US REIT Index (net div.)
 Bloomberg Barclays US Aggregate Bond Index
 MSCI World ex USA Index (net div.)
 MSCI World ex USA Value Index (net div.)
 Russell 2000 Value Index
 Russell 1000 Value Index
 Dow Jones U.S. Select REIT Index
 As of 3/31/2018

US Stocks

The US equity market posted a negative return for the quarter. Value underperformed growth across large and small cap indices. Small caps outperformed large caps.

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
0.64 13.81 10.22 13.03 9.62
Large Cap
0.69 13.98 10.39 13.17 9.61
Large Value
2.83 6.95 7.88 10.78 7.78 
Large Growth
1.42 21.25 12.90 15.53 11.34
Small Cap
0.08 11.79 8.39 11.47 9.84
Small Value
2.64 5.13 7.87  9.96 8.61
Small Growth
2.30 18.63 8.77  12.9 10.95
As of 3/31/2018

International Developed Stocks

In US dollar terms, developed markets outside the US underperformed the US and emerging markets during the quarter. Value underperformed growth in non-US developed markets across large and small cap indices. Small caps outperformed large caps in non-US developed markets.

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
Large Cap
-2.04 13.92 5.30 6.04 2.59
Small Cap
-0.50 21.16 11.30 9.71 5.81
-2.52 11.66 4.46 5.44 2.08
-1.56 16.28 6.06 6.58 3.03
As of 3/31/2018

Emerging Markets Stocks

In US dollar terms, emerging markets outperformed developed markets, including the US, during the quarter. The value effect was positive in large cap indices but negative in small cap indices within emerging markets. Small caps underperformed large caps in emerging markets. 

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
Large Cap
1.42 24.93 8.81 4.99 3.02
Small Cap
0.17 18.62 7.23 4.58 4.36
1.62 18.14 6.65 2.57 2.07
1.22 31.73 10.89 7.30 3.87
As of 3/31/2018


Real Estate Investment Trusts (REITs)

Non-US real estate investment trusts outperformed US REITs in the first quarter.

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
US REITS 3.76 -3.68 0.74 5.97 6.02
Global REITS (ex US)
15.64 10.20 3.59 3.73 2.51
As of 3/31/2018



The Bloomberg Commodity Index Total Return declined -0.40% during the first quarter. The grains complex led performance, with soybean meal returning 20.24% and corn gaining 8.30%. Energy also advanced, with WTI crude oil returning 8.40% and Brent oil advancing 4.99%. Softs was the worst-performing complex, with sugar and coffee declining by -18.19% and -7.96%, respectively.

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
Commodities 1.70 -3.71 -3.21 -8.32 -7.71
As of 3/31/2018

Fixed Income

Interest rates increased in the US during the first quarter. The yield on the 5-year Treasury note rose 36 basis points (bps), ending at 2.56%. The yield on the 10-year Treasury note increased 34 bps to 2.74%.


The 30-year Treasury bond yield rose 23 bps to finish at 2.97%. On the short end of the yield curve, the 1-month Treasury bill yield increased 35 bps to 1.63%, while the 1-year Treasury bill yield rose 33 bps to 2.09%. The 2-year Treasury note finished at 2.27% after a yield increase of 38 bps.


In terms of total return, short-term corporate bonds dipped -0.38% and intermediate corporates fell -1.50%. Short-term municipal bonds advanced 0.10%, while intermediate munis declined -1.29%. Revenue bonds performed in-line with general obligation bonds, declining -1.19% and -1.20%, respectively.

Period Returns %       *Annualized
Asset Class
QTD  1 Yr 3 Yrs*  5 Yrs*  10 Yrs* 
Bloomberg Barclays Municipal Bond Index
-1.11 2.66 2.25 2.73 4.40
Bloomberg Barclays US Aggregate Bond Index
-1.46 1.20 1.20 1.82 3.63
Bloomberg Barclays US Government Bond Index Long
-3.22 3.53 0.45 3.28 5.75
Bloomberg Barclays US High Yield Corp Bond Index
-0.86 3.78 5.17 4.99 8.27
Bloomberg Barclays US TIPS Index
-0.79 0.92 1.30 0.05 2.93
FTSE World Gov’t Bond Index 1-5 Years
1.64 5.77 2.36 -0.37 0.57
FTSE World Gov’t Bnd Index 1-5 Years (hedged to USD)
0.17 1.01 1.06  1.21 1.93
ICE BofAML 1-Year US Treasury Note Index
0.25  0.66 0.54 0.42 0.71
ICE BofAML 3-Month US Treasury Bill Index
0.35  1.11 0.53 0.34 0.34
As of 3/31/2018

Feature Article:

Hold, Don’t Fold


If you’ve been through previous market turbulence—2000 or 2008, for instance—you know that sinking feeling when the market falls and doesn’t get back up. But that was then and this is now. There isn’t much agreement among analysts and pundits about how to read the current volatility, including whether we’re headed for a recession, a deep correction, or a prolonged period of decent but more moderate growth.

Perhaps you’ve heard, as I have over the past year, investors wishing that things would slow down just a bit. In a recent article, James Paulson, chief investment strategist at the Leuthold Group, expressed the wish that “…a much bigger panic [would] happen. And I think the best thing for the market would be if it happened soon and we could just move on from there” (New York Times, Jeff Sommer, March 30). Paulson is worried because investors aren’t worried enough to be running to safe havens. “The problem,” he says, “is that the stock market rose so much last year that we’ve already paid ourselves a bonus from the tax cut and from earnings growth. The market needs to catch up with itself.”

If everyone agrees the market is overdue for a correction, does that make them right? Of course not. The idea that investors are not reacting as expected is curious in itself. Perhaps the horde of investors who fled to index funds over the past several years have grown wiser. Maybe the investors who were down 60% in 2009 but are now up 260% from that low have learned something about holding on. Your guess is as good as mine.

Volatility is like a thunderstorm. You can’t really ignore it as it lights up the sky and booms in your eardrums. But you don’t want to go out and play in it, either. You are well protected as a Cardiff Park investor. You have a diversified investment plan based on a realistic goal and timeline, a true sense of your risk-taking ability (including the risk needed to achieve your goal, and the risk you can stomach), the ability to ignore pundits and fear-mongers, and the flexibility to adjust course when needed. It’s not only markets that dip and soar. Our own lives do the same. There is no certainty. But we do know, based on more than 100 years of market data, that the market rewards long-term, patient, buy-and-hold investors. You can’t control market risk; you can only control your exposure and response to it.

As for us, we don’t wish for panic of any kind. Instead we hope you are enjoying spring and making plans for the summer ahead.
Do you have questions or concerns? Call me, I am here to help.


John Gorlow


Cardiff Park Advisors

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