Volatility returns. After a start to the year where the equity markets moved close to hitting year-end targets in one month, volatility returned with a vengeance, spurred most likely by the release of the Employment Situation Summary on February 2 reporting a 2.9% year-over-year increase in average hourly earnings. Everyone became a Philips Curve acolyte and fears of runaway inflation took hold, leading to a sharp correction in risk assets. For the rest of the quarter, financial markets were buffeted by the daily drama emanating from the White House and shaken by the specter of trade wars and untested leadership at the FOMC; as First Quarter drew to an end, investors were left eagerly awaiting earnings with risk assets trading near February lows.
Global property securities experienced a rough start to 2018 as the broader equity markets dealt with a number of headwinds and increased volatility in the quarter. Signs of rising inflation triggered worries of faster rate hikes by central banks, while President Trump raised fears of a global trade war when he introduced steel and aluminum tariffs and tougher trade talks with China. Even tech stocks, star performers in 2017, came under pressure as a result of Facebook’s data/privacy scandal and Trump’s attacks on Amazon raised fears of tighter regulation slowing their growth. The numerous cross currents provided much for investors to consider as earnings season approaches. While property securities remained out of favor for much of the quarter, they did experience a slight rally in March as a flight to safety reversed some of the earlier rise in sovereign bond yields and defensive sectors such as REITs attracted more interest. After getting a lift last quarter from a flurry of M&A announcements and speculation, the beleaguered retail sector once again fell out of favor and dragged down performance in most regions.