Here is a recap of market performance for the month of March and year-to-date:
March was a volatile month with mixed results for financial markets. US large cap stocks outperformed, while small cap and international stocks also increased. Bonds, however, continued to decline. So far this year, all markets have declined, with bonds and stocks down similar amounts.
Most of the time, stocks and bonds complement each other: when one goes down in value, usually the other is positive. But as mentioned above, so far this year, both asset classes show negative returns. This got us thinking about how often this has happened in the past.
Using data provided by Morningstar, we looked at monthly returns for the Bloomberg US Aggregate Bond Index and the S&P 500 on a monthly basis since 1976. Here is a graph of what we found:
You can see from this chart how frequently stocks and/or bonds decline. Historically, both investments have been down roughly the same number of months. But at least one group is higher in around 85% of monthly periods. This shows the benefit of diversification – only 15% of months during the last 46 years have had both stocks and bonds negative simultaneously. This year, bonds declined in all three months. Stocks went down in January and February, but rebounded in March.
The Average Returns for these periods shows us the severity of the decline. Even during unpleasant months, bonds still tend to provide some diversification benefit. During months when stocks are down, they average greater than 3% decline, while bonds are typically down less than 1%. It’s noteworthy that so far this year, bonds have actually decreased more than stocks, which is quite uncommon.
While traditional asset classes have struggled to start the year, another asset class has picked up the slack – commodities, which include agricultural products, metals, and energy. The Invesco Commodity ETF (ticker DBC), which measures a basket of commodity products, has increased 25.41% this year. While most investors do not invest in commodities directly, energy stocks and some emerging markets with exposure to commodities have increased significantly this year, improving portfolio returns.
If you would like to talk more about how these recent events have affected your portfolio specifically, please let us know.