It was a wild week for stocks — a seemingly fitting end to what has been a wild quarter overall. U.S. equities jumped Monday when it appeared fears of a trade war with China may have been overblown. This was followed by a sharp reversal Tuesday, with mega cap technology stocks leading the decline, and another rebound on Thursday. When the dust finally settled, global stocks were nicely positive for the week, but still negative for the quarter and year. Emerging market stocks, gold and commodities were the few categories posting gains in Q1.

Weekly Returns

S&P 500: 2,641 (+2.0%)
FTSE All-World ex-US: (+2.5%)
US 10 Year Treasury Yield: 2.74% (-0.07%)
Gold: $1,329 (-1.3%)
EUR/USD: $1.230 (-0.4%)

Major Events

• Monday – Reports surfaced that the United States and China were quietly negotiating trade solutions, temporarily alleviating fears of an oncoming trade war.
• Tuesday – Single-family home prices continued rise in the month January, increasing 6.2% in major metropolitan areas, according to reports from S&P.
• Wednesday – Mega cap technology stocks came under further pressure on fears of increased regulation.
• Thursday – President Trump publicly criticized Amazon over taxes and its impact on physical store retailers, among other things.
• Friday – U.S. stock markets are closed for Good Friday.

Our Take

As we come to the end of the first quarter, we’re reminded of an important lesson in investing: what goes up the most tends to come down the most. We all know this happened with technology stocks in the early 2000s, followed by financial stocks in 2008. Both of these sectors were the darlings of Wall Street, posting very strong gains in up years. But when the music eventually stopped, these sectors were hit harder than any other category. We’re not saying we’re in another tech bubble, and we’re not saying the music has stopped, but it’s worth noting the same trends often play out on smaller scales.

As has been widely reported, a handful of mega cap stocks (primarily FAANG – FB, APPL, AMZN, NFLX, GOOGL – stocks) dominated market returns over 2017, and looked to continue the trend as 2018 got underway. However, a string of recent events has called their dominance into question and sparked a sharp selloff. Over the last few weeks, the broader market has fallen roughly 5%. This compares to an equal weighted index of FAANG stocks, which is down 10% over the same period—twice the amount as the overall market.

Again, there’s nothing to suggest this is an official turning point for FAANG stocks, or technology stocks in general. Some even rebounded strongly on Thursday. But as we detailed last week, more than half of technology’s 34% gain last year was driven by multiple expansion – or simply higher prices – as opposed to actual earnings growth. So at some point a pullback is bound to occur.

It’s a good reminder to double check your portfolio allocations and ensure you’re properly diversified. Remember, you’re not immune just because you own an S&P 500 index fund. Technology stocks now represent almost a quarter of that index.