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  First Quarter 2018 Market Commentary

Economic Highlights


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2018 First Quarter Market Update Webinar

GDP: Real GDP growth was strong at 2.9% annualized during the fourth quarter of 2017. Economic activity accelerated for the year versus a year prior, with growth of 2.3% for 2017. The main contributor for the quarter was personal consumption expenditures, which added 2.8%. Growth in consumer spending was the strongest it has been in three years. However, the trade deficit widened considerably, detracting from domestic growth as imports aided in satisfying consumer demand. Source: Department of Commerce (BEA)

Interest Rates: The U.S. Treasury yield curve rose in a nearly parallel fashion during the quarter, with most maturities increasing 30 to 40 basis points. The 10-year Treasury was up 34 basis points, finishing at 2.74%, with a major jump in yields occurring in January. This marked the highest quarter-end reading in more than four years. The Federal Reserve raised its benchmark rate by 0.25% during their March meeting, the first led by the new chair Jerome Powell. Source: U.S. Treasury

Inflation: The Consumer Price Index was up 0.9% for the three months ending February and 2.3% for the one-year period. The 10-year breakeven inflation rate closed the first quarter at 2.05%, up from 1.96% at the end of December. Source: Department of Labor (BLS), U.S. Treasury

Employment: Jobs growth accelerated as 2018 began, with total nonfarm employment increasing by an average of 242,000 jobs per month during the three months ending February 2018. The unemployment rate remains below 5%, equaling 4.1% in February, a level not seen since the early 2000s. Source: Department of Labor (BLS)

Housing: Home prices continue to make sizable gains into 2018, with the S&P Case-Shiller 20-city Home Price Index up 2.2% for the three months ending January 2018. For the past 12 months, the Index is up 6.3%. Source: Standard & Poor’s

The U.S. Equity Market

The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM, was down -0.76% for the first quarter of 2018. This marks only the second negative quarter in nearly six years. Market volatility returned after a tranquil 2017. While the market never experienced a daily loss of 2% or more last year, there were five such down days during the first quarter of 2018, including a 4% loss in early February. Ironically, it was mostly good news on the economic front that caused much of the volatility. Strong jobs reports and wage growth had investors rethinking their inflation expectations and led to concerns that the Federal Reserve might accelerate increases in its short-term rate.

U.S. Equity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire 5000 Total Market IndexSM -2.10 -0.76 -0.76 13.69
Standard & Poor’s 500 Index -2.54 -0.76 -0.76 13.99
Standard & Poor’s TSX Index (CAD) -0.77 -7.21 -7.21 5.21
Wilshire 4500 Completion IndexSM 0.65 -0.13 -0.13 13.01

U.S. Equity by Size/Style

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. Large Cap IndexSM -2.43 -0.76 -0.76 14.06
Wilshire U.S. Large Cap Growth IndexSM -3.04 1.30 1.30 19.64
Wilshire U.S. Large Cap Value IndexSM -1.94 -2.95 -2.95 8.58
Wilshire U.S. Small Cap IndexSM 1.19 -0.73 -0.73 10.13
Wilshire U.S. Small Cap Growth IndexSM 0.97 1.41 1.41 16.96
Wilshire U.S. Small Cap Value IndexSM 1.38 -2.92 -2.92 3.44
Wilshire U.S. Micro Cap IndexSM 2.43 -0.29 -0.29 13.16

Large capitalization stocks performed in-line with small caps, as the Wilshire Large Cap IndexSM fell -0.76% versus a loss of -0.73% for the Wilshire Small Cap IndexSM. The large cap segment of the market has outpaced small caps over the past twelve months. The Wilshire Micro Cap IndexSM was down -0.29% for the quarter but up 13.16% for the one-year. Growth stocks led value during the first quarter in both the large and small cap spaces.

Most of the eleven major sectors were down during the quarter. The best performing sectors were Information Technology (+4.1%) and Consumer Discretionary (+2.1%), while Telecoms (-7.3%) and Consumer Staples (-6.8%) were the main detractors.

University of Michigan Current Personal Finance Situation Index

University of Michigan Current Personal Finance Situation Index

Source: University of Michigan

Consumer spending, the main driver of economic growth, will be a key issue to watch in 2018. Consumers are highly interest rate sensitive, but the increases in short-term rates that the Federal Reserve has been applying have so far had a muted affect. In fact, a survey conducted by the University of Michigan as part of their consumer sentiment survey indicates that families feel better about their personal finances today than they have in the past 20 years. There are other signs of consumer strength as well. The unemployment rate is very low, wages are starting to rise, and households continue to increase borrowing after a long recovery following the 2008 recession.

The Non-U.S. Equity Market

Equity markets outside of the U.S. produced mixed results during the first quarter of 2018, with emerging markets posting positive returns while developed markets were in negative territory. Emerging markets continue to lead all global equities and produced the only positive return for the quarter among the major equity segments. The U.S. dollar continued to weaken, providing a return boost for U.S. investors holding foreign currencies. Concerns about global trade conflicts dominated headlines during the quarter. However, it is yet to be seen whether the future holds a series of escalating tariffs or trade deals like the one announced between the U.S. and South Korea. On the trade front, both the U.S. and China have imposed tariffs on one another while there are reports of negotiations between the two major trading partners.

Non-U.S. Equity

  USD (%) Local Currency (%)
MSCI AC World ex U.S. -1.76 -1.18 -1.18 16.53 -2.01 -3.07 -3.07 8.93
MSCI EAFE -1.80 -1.53 -1.53 14.80 -2.23 -4.28 -4.28 5.34
MSCI Europe -1.20 -1.98 -1.98 14.49 -1.92 -4.35 -4.35 2.00
MSCI Pacific -2.78 -0.68 -0.68 15.78 -2.72 -4.14 -4.14 11.90
MSCI Japan -2.11 0.83 0.83 19.64 -2.44 -4.81 -4.81 14.19
MSCI EM (Emerging Markets) -1.86 1.42 1.42 24.93 -1.87 0.72 0.72 22.01
MSCI ACWI ex U.S. Small Cap -1.13 -0.35 -0.35 20.60 -1.43 -2.42 -2.42 12.86

The Fixed Income Market

The U.S. Treasury yield curve rose in a parallel fashion during the quarter, with most maturities up approximately 35 basis points. The bellwether 10-year Treasury yield ended the quarter at 2.74%, up 34 basis points from year-end 2017. The Federal Open Market Committee decided to increase its overnight rate by 25 basis points in March to a range of 1.50% to 1.75%. While their forecast for year-end rates was unchanged, they increased their expectation for next year, suggesting a quickened pace in 2019. Credit spreads widened during the quarter, most noticeably with investment grade credit. High yield spreads, which have averaged 6% during the past decade, were still relatively low at 3.5% at quarter-end.

U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays U.S. Aggregate 0.64 -1.46 -1.46 1.20
Bloomberg Barclays Long Gov’t/Credit 1.65 -3.58 -3.58 5.09
Bloomberg Barclays Long Term Treasury 3.03 -3.29 -3.29 3.51
Bloomberg Barclays U.S. TIPS 1.05 -0.79 -0.79 0.92
Bloomberg Barclays U.S. Credit 0.31 -2.13 -2.13 2.59
Bloomberg Barclays U.S. Corporate High Yield -0.60 -0.86 -0.86 3.78

Non-U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Bloomberg Barclays Global Aggregate 1.06 1.36 1.36 6.97
Bloomberg Barclays Global Aggregate (Hedged) 0.83 -0.12 -0.12 2.46
Bloomberg Barclays EM Local Currency Government Universal 1.54 3.13 3.13 9.21
Bloomberg Barclays EM Local Currency Gov’t Universal (Hedged) 1.01 1.10 1.10 1.45
Citigroup World Government Bond Index ex-U.S. 1.84 4.42 4.42 12.93
Citigroup World Government Bond Index ex-U.S. (Hedged) 1.39 1.50 1.50 3.95

Real Estate/Commodity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. RESISM 4.09 -7.42 -7.42 -3.43
Wilshire Global ex U.S. RESISM 1.20 -1.17 -1.17 12.89
Wilshire Global RESISM 3.00 -5.19 -5.19 2.07
Dow Jones UBS Commodity Index -0.62 -0.40 -0.40 3.71
S&P GSCI Commodity 2.22 2.19 2.19 13.83
Alerian MLP Index -6.94 -11.12 -11.12 -20.07

The Real Estate and Commodity Markets

Real estate securities were down in the U.S. during the first quarter, although March brought a strong rebound from previous losses. Commodity performance was mixed for the quarter as crude oil rose 7.5% to $64.94 per barrel. Natural gas prices were down, however, with a loss of -7.5%, ending the quarter at $2.73 per million BTUs. MLP returns were negative for the quarter (-11.12%) and for the past twelve months (-20.07%). Finally, gold prices were up and finished at approximately $1,327 per troy ounce, up 1.4% from last quarter.

The Liquid Alternatives Market

The Wilshire Liquid Alternative IndexSM returned -0.99% in the first quarter, in-line with the -1.02% return of the HFRX Global Hedge Fund Index. Long-biased equity strategies underperformed, driven by weak equity markets. Quantitative and systematic strategies outperformed, while growth strategies continued to outperform value-oriented strategies. Global macro strategies detracted significantly given an extremely tough February in both equities and rates. After a strong January, in which CTA managers were positioned extremely long equities, many of these managers were caught on the wrong side of the sharp selloff in equities. Certain credit managers with exposure to leveraged loans and structured credit outperformed as credit spreads remained tight and interest rates rose. Merger arbitrage strategies were mixed as accurate deal selection proved paramount in the challenging equity markets.

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire Liquid Alternative -0.42 -0.99 -0.99 2.59
Wilshire Liquid Alternative Equity Hedge -0.95 -2.28 -2.28 3.12
Wilshire Liquid Alternative Event Driven -0.70 0.21 0.21 2.19
Wilshire Liquid Alternative Global Macro -0.31 -1.71 -1.71 -2.14
Wilshire Liquid Alternative Multi-Strategy -0.39 -1.04 -1.04 3.89
Wilshire Liquid Alternative Relative Value -0.05 -0.01 -0.01 2.40


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This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Past performance is not indicative of future results. 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.

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