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  First Quarter 2017 Market Commentary

Economic Highlights

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GDP: Real GDP growth slowed during the fourth quarter of 2016 but was solid at 2.1% annualized. Economic growth for the entire year was 1.6%, the lowest since a similar figure in 2013. Both consumer and business spending contributed to growth, with expanding inventories being the main driver of private investment. An increase in the trade deficit was the major detractor from growth after a spike in exports during the third quarter proved to be temporary, in part due to the strengthening U.S. dollar. Source: Department of Commerce (BEA)

Interest Rates: Rates were little changed during the quarter except in the short end of the curve. While the 10-year Treasury was down just 5 basis points, finishing at 2.40%, the 1-year yield was up 0.2%. This shift was driven by the Federal Reserve’s decision to increase the Fed Funds rate by 0.25% during their March meeting, following a similar increase in December. Source: U.S. Treasury

Inflation: Consumer price increases continued to accelerate into the first quarter of 2017. The Consumer Price Index was up 0.9% for the three months ending February and 2.8% for the oneyear period. The 10-year breakeven inflation rate closed the first quarter at 1.97%, little changed from December. Source: Department of Labor (BLS), U.S. Treasury

Employment: Jobs growth accelerated to begin the year, with total nonfarm employment increasing an average of 209,000 jobs per month during the three months ending February 2017. The unemployment rate registered at 4.7% in February, a level not seen since pre-crisis 2007. Source: Department of Labor (BLS)

Housing: Home prices continue to move higher into the new year, with the S&P Case-Shiller 20-city Home Price Index up 2.7% for the three months ending January 2017. For the past 12 months, the Index is up 5.7%. Source: S&P

The U.S. Equity Market

The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM, was up 5.61% for the first quarter of 2017. The market has been trending generally upward for more than a year now, including six straight quarterly gains. Economic releases during the quarter were strong and markets took comfort in both the Federal Reserve’s 0.25% increase in the overnight rate and its accompanying statement. Despite accelerating price increases, the Fed’s forecast for the Fed Funds rate at year-end 2017 was little changed from their December meeting.

U.S. Equity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire 5000 Total Market IndexSM 0.05 5.61 5.61 18.35
Standard & Poor’s 500 Index 0.12 6.07 6.07 17.17
Standard & Poor’s TSX Index (CAD) 1.34 2.41 2.41 18.62
Wilshire 4500 Completion IndexSM -0.09 4.14 4.14 23.61

U.S. Equity by Size/Style

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. Large Cap IndexSM 0.07 6.01 6.01 17.77
Wilshire U.S. Large Cap Growth IndexSM 0.58 8.13 8.13 19.84
Wilshire U.S. Large Cap Value IndexSM -0.44 3.95 3.95 15.76
Wilshire U.S. Small Cap IndexSM -0.19 2.26 2.26 24.12
Wilshire U.S. Small Cap Growth IndexSM 0.58 3.65 3.65 24.67
Wilshire U.S. Small Cap Value IndexSM -1.05 0.81 0.81 23.59
Wilshire U.S. Micro Cap IndexSM 1.22 1.91 1.91 27.44

Large capitalization stocks outperformed smaller shares with the Wilshire U.S. Large Cap IndexSM up 6.01% versus a gain of 2.26% for the Wilshire U.S. Small Cap IndexSM. Small cap performed better, however, for the one-year period although both segments have been quite strong. The Wilshire U.S. Micro Cap IndexSM was up 1.91% for the quarter and 27.44% for the one-year. Growth stocks led value stocks during the first quarter in both the large and small cap spaces and led for the past 12 months as well.

Sector performance was varied during the quarter. The best performing sector was Information Technology (+11.9%), with Health Care (+8.9%) and Consumer Discretionary (+7.9%) close behind. Two sectors were in negative territory: Energy (-6.9%) and Telecom Services (-3.1%).

Growth in Average Hourly Earnings: Rolling 1-Year

Growth in Average Hourly Earnings: Rolling 1-Year

Source: Bureau of Economic Analysis

Beyond an unemployment rate below 5% there are number of signals that point to strength in the employment market. Job openings are far higher than they have been in more than a decade and “quits” (employees leaving jobs voluntarily) are back to the level that existed prior to the credit crisis. Perhaps most encouraging for employees is that the demand for labor is continuing to push wage growth higher. The latest recession moved wage growth as low as it has been in 25 years, but it is back on an upward trajectory after a brief dip in early-2015. Finally, labor force participation, which has been on the decline since 2001, has moderated near 63% during the past several years.

The Non-U.S. Equity Market

Developed and emerging equity markets outside of the U.S. produced strong returns during the first quarter of 2017. The U.S. dollar weakened during the quarter, providing an additional boost for U.S. investors holding foreign currencies. Economic releases out of Europe suggest an improving economy and Pacific-region equities received a boost from countries such as Hong Kong and Singapore. The Japanese market was flat in local currency terms. Despite major events in the global political arena, emerging market equities had their best quarter since early 2012 to begin the new year. Corporate earnings in these countries have been generally improving, and are expected to move higher going forward.

Non-U.S. Equity

  USD (%) Local Currency (%)
MSCI AC World ex U.S. 2.54 7.86 7.86 13.13 2.21 5.21 5.21 17.33
MSCI EAFE 2.75 7.25 7.25 11.67 2.41 4.71 4.71 18.00
MSCI Europe 4.02 7.44 7.44 9.76 3.51 6.02 6.02 19.56
MSCI Pacific 0.65 6.92 6.92 15.77 0.57 2.53 2.53 15.64
MSCI Japan -0.37 4.49 4.49 14.44 -0.77 -0.17 -0.17 13.46
MSCI EM (Emerging Markets) 2.52 11.44 11.44 17.21 1.93 7.76 7.76 15.06
MSCI ACWI ex U.S. Small Cap 2.07 8.78 8.78 12.26 1.75 5.85 5.85 16.00

The Fixed Income Market

The U.S. Treasury yield curve did not shift much during the quarter, but did flatten with the six-month yield up 29 basis points and the 10-year down 5 basis points. The bellwether 10-year Treasury yield ended the quarter at 2.40%, down slightly but much higher than it was a year ago (1.78%). The Federal Open Market Committee decided to increase the overnight rate by 0.25% at their March meeting, the third increase since 2008. Credit spreads continued to trend lower during the quarter in both investment grade and high yield bonds. High yield spreads, which have averaged 6% during the past decade, fell below 4% during the quarter for the first time since mid-2014.

U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays U.S. Aggregate -0.05 0.82 0.82 0.44
Bloomberg Barclays Long Gov’t/Credit -0.56 1.58 1.58 0.98
Bloomberg Barclays Long Term Treasury -0.55 1.40 1.40 -5.00
Bloomberg Barclays U.S. TIPS -0.05 1.26 1.26 1.48
Bloomberg Barclays U.S. Credit -0.15 1.30 1.30 2.96
Bloomberg Barclays U.S. Corporate High Yield -0.22 2.70 2.70 16.39

Non-U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays Global Aggregate 0.15 1.76 1.76 -1.90
Bloomberg Barclays Global Aggregate (Hedged) -0.05 0.44 0.44 1.09
Bloomberg Barclays EM Local Currency Government Universal 1.41 4.52 4.52 1.69
Bloomberg Barclays EM Local Currency Gov’t Universal (Hedged) 0.38 0.25 0.25 0.26
Citigroup World Government Bond Index ex-U.S. 0.25 2.02 2.02 -4.79
Citigroup World Government Bond Index ex-U.S. (Hedged) -0.15 -0.35 -0.35 0.58

Real Estate/Commodity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. RESISM -2.37 0.50 0.50 2.72
Wilshire Global ex U.S. RESISM 1.23 5.62 5.62 2.26
Wilshire Global RESISM -1.17 2.19 2.19 2.53
Dow Jones UBS Commodity Index -2.66 -2.33 -2.33 8.71
S&P GSCI Commodity -3.91 -5.05 -5.05 8.45
Alerian MLP Index -1.30 3.95 3.95 28.32

The Real Estate and Commodity Markets

Real estate securities were up slightly in the U.S. during the first quarter, with much stronger returns globally. Commodities were down for the quarter as crude oil fell -5.80% to $50.60 per barrel. Natural gas prices were down as well, posting a loss of -14.30% to end the quarter at $3.19 per million BTUs. MLP returns were positive for the quarter despite the pullback in oil and natural gas prices. Finally, gold prices were up and finished at approximately $1,251 per troy ounce, up 8.60% from last quarter.


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This material contains confidential and proprietary information of Wilshire. It may not be disclosed, reproduced, or redistributed in whole or in part, to any other person or entity without prior written permission from Wilshire Funds Management.

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Past performance does not guarantee future returns. This material may include estimates, projections, and other “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented.

This material represents the current opinion of Wilshire based on sources believed to be reliable. Wilshire assumes no duty to update any such opinions. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice.

©2017 Wilshire Associates Incorporated. All rights reserved.

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