Your – oh! March 2021 Commentary
“Europe is so well gardened that it resembles a work of art, a scientific theory, a neat metaphysical system. Man has re-created Europe in his own image.” – Aldous Huxley
For investors, Europe is not so much a place given up for lost as simply forgotten. And when not forgotten, the glimmerings of its continuing existence are likely to be reminders of the imperfections of the human experience. “In another locked down, disrupted Easter, a tired Italy can’t escape the virus.” So said The Washington Post. “German finance chief says Covid surge shows now is not the time to reopen economy.” That from CNBC. Describing the continent in its entirety CBS News headlined “New wave of coronavirus infections sweeps across Europe.” So life goes forwards in much of the world but in Europe seemingly it remains the same. Clearly not a good time to buy European stocks, right? And what if one owns them? Should they sell them?
Curiously though, the markets seem to be saying something entirely different. The Markit Manufacturing PMI indicator measures the rate of growth of the most cyclical of the economic sectors and so serves as a very good indicator of the trend for the remainder of the economy. In March there were six countries with a stronger PMI number than the US. Five were in Western Europe including #1 Germany and #4 Italy. The German number was the highest in twenty-five years and dramatically exceeded expectations. The European stock markets may be telling us that there is more where this is coming from. The Euro STOXX 50, a sort of Dow Jones Industrial Average for large European companies, has handily outperformed the S&P 500 year to date 6.74% versus 5.77%. The best performing European stock market of all? Italy, outperforming the S&P for the month 5.31% versus 4.24%.
Has anybody noticed the divergence in the performance of the Dow Jones Industrial Average versus that of the S&P 500 in recent months? The ten-year average returns for the two indices, 12.93% and 13.81%, and the five year returns of 15.85% and 16.23% are reasonably close to one another but this year to date is a bit of a different story. January’s -2.10% versus -1.01%, (S&P & DJIA) February’s 3.17% versus 2.76% and March’s 6.62% versus 4.24% result in a Q1 2021 return of the two indices of 7.76% for the DJIA and 5.77% for the S&P. Finally, in a revelation of the pursuit of reverse near symmetry, from January 4th through February 12th the S&P outperformed the DJIA 4.7% to 2.8% but from March 4th through March 29th the DJIA outperformed the S&P 4.6% to 3.0%. That would seem to be, as we say in the trade, statistically significant.
March, while one-third of the quarter, bore some distinguishing qualities very much its own. Small cap stocks (as measured by the Russell 2000) were up 1.39% for the month, one-third of that of the S&P, though returning 12.90% for the quarter, more than twice that of the S&P. In the large cap space value continued to outperformed growth 6.31% to 2.72% for March and 10.91% versus 2.22% for the quarter. Foreign stocks underperformed the US market (despite the strength of the European markets) with returns of 2.51% for the month and 3.99% for the quarter. The 60% equity 40% fixed income portfolio returned 4.39% for the quarter and 1.11% for the month with the equity portion of the returns (6.73% for the quarter and 2.76% for the month) being offset by the modest negative returns of the fixed income portion due to the rise in interest rates during the quarter.
Mark H. Tekamp; April 7, 2021