Quarterly Performance Update

Stock Rally Rolled On, Bonds Bounced Back

First Quarter 2017

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Optimism regarding earnings, the economy, and “Trumponomics” continued to energize the stock market, while the bond market maintained a more cautious tone. Overall, stocks extended their gains, while bonds rebounded from their fourth-quarter losses.

Solid corporate earnings reports, an upbeat economic outlook, and soaring consumer and business confidence helped extend the U.S. stock market rally for another quarter. Expectations for President Trump's administration to cut taxes, reduce regulations, and launch a significant infrastructure spending plan continued to help fuel the upbeat tone through February. The market’s march upward stalled late in the quarter after health care reform legislation failed, forcing investors to adopt more realistic expectations for policy reforms. Despite the late-quarter setback, the broad market (S&P 500® Index) advanced +6.07% to post its sixth-consecutive quarterly gain and its biggest quarterly jump since 2015.

Stock performance was even stronger outside the U.S., where non-U.S. developed market stocks (MSCI EAFE Index) gained +7.25% and emerging markets (EM) stocks (MSCI Emerging Markets Index) rallied +11.44%. Of note, earnings and economic fundamentals continued to signal improving trends in Europe, and valuations remained relatively attractive compared with U.S. stocks. Similarly, economic data in Japan continued to improve, but the yen’s strength during the quarter weighed on stock performance versus other developed markets. Emerging markets benefited from the cyclical upswing in global economic activity, improved commodity prices (from their lows in early 2016), a weaker dollar, and a toning down of protectionist rhetoric from the Trump administration.

Meanwhile, the post-election U.S. Treasury market sell-off, which hampered investment-grade bond returns in the fourth quarter, faded in the first quarter, and bonds increased +0.82% (Bloomberg Barclays U.S. Aggregate Bond Index). As investors tempered their expectations for Trump administration reforms, Treasury yields stabilized. Also, the Federal Reserve (Fed) hiked interest rates 25 basis points, while adopting a somewhat dovish tone regarding future rate hikes. The Fed’s more subdued outlook also aided Treasuries and helped support broad market returns. High-yield corporate bonds were top performers, benefiting from investor demand for yield, a rallying stock market, and expectations for tax and regulatory reform. Global bond yields experienced some volatility but finished the quarter little changed. The U.S. dollar was weaker versus most major currencies, which lifted non-U.S. bond returns for unhedged U.S. investors.

The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments' fund. This information is for educational purposes only and is not intended as investment advice.

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Source: Bloomberg Index Services Ltd

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