The market reversed course in the first quarter with the S&P 500 Index climbing 13.1% after a bruising fourth quarter decline which narrowly missed the 20.0% bear market territory. Historically, when the S&P 500 Index gains 10.0% or more in the first quarter, 9 out of 10 times the balance of the year is positive suggesting the bulls could remain in charge for the year.
The Federal Reserve’s change in direction by promoting a more dovish tone created fuel injection to move the equity market higher. Dividend stocks also experienced renewed strength as the 10-year Treasury yield declined 28 basis points to a low of 2.4%. According to Ned Davis Research, the number of stocks with a dividend yield higher than the 10-year Treasury increased to 32.0% from a long-term average of 15.0%.
Ten long years after the market low during the financial crisis, the 10-year Treasury yield is trading in the same range as March 2009, while the S&P 500 Index is higher by over 400.0%. Our focus remains on the dividend growers for their strong earnings profile versus the highest yielding dividend stocks.
The healthcare sector went from the best-performing sector in 2018 to the worst-performing in 2019. As the 2020 election looms closer, political pressures mount against rising drug and insurance prices. In addition, disappointing drug trials and subpar earnings growth continue to plague the industry. Longer term, the sector is attractive for its defensive properties and above average dividend yields but we remain underweight until the earnings picture improves.
The top performing sectors included information technology (+19.8%), industrials (+17.2), and real estate (+17.0%) while the underperformers were health care +6.5%, financials (+8.5%) and basic materials (+10.3%). The portfolio ended the first quarter underweight the healthcare, financials and utilities and overweight industrials, information technology and staple sectors.
New positions in the portfolio included Automatic Data Processing, Inc., Bank of America Corp, BHP Group, Cinemark Holdings Inc., Eaton Corporation and Phillip Morris International Inc. Over the quarter, the portfolio sold out of CVS Health Corporation, Medtronic Inc, Abbvie Inc, Nordstrom, Total S.A. and Occidental Petroleum Corp.
Top 5 Contributors
|Ticker||Quarter Ending March 31, 2019||Average Weight||Contribution To Return|
|LUKOY||Oil Company LUKOIL PJSC Sponsored ADR||3.14||0.77|
|CSCO||Cisco Systems, Inc.||2.7||0.63|
|UNP||Union Pacific Corporation||2.11||0.44|
Top 5 Detractors
|Ticker||Quarter Ending March 31, 2019||Average Weight||Contribution to Return|
|CVS||CVS Health Corporation||1.49||-0.18|
|BMY||Bristol-Myers Squibb Company||1.41||-0.14|
|ALK||Alaska Air Group, Inc.||0.45||-0.12|
Sources: Factset, Ned Davis Research, Bloomberg
Past performance does not guarantee future results. The holdings identified do not represent all of the securities purchased, sold or recommended for advisory clients. In the chart above, “weight” is the average weight of the holding during the period and “contribution” is the contribution to overall performance during the period. To obtain the calculation methodology and a list showing every holding’s contribution to the overall composite performance during the period, contact PortfolioAnalytics@ccmg.com.
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The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities.
The Dow Jones Industrial Average is a stock market index that shows how 30 large publicly owned companies based in the U.S. have traded during a standard trading session in the stock market.
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