What struggled in the first quarter? Stocks, bonds, basically everything

“It was the best of times, it was the worst of times…”

So wrote Charles Dickens at the start of his classic “A Tale of Two Cities,” but he could just as easily have been referring to the stock market in the first quarter of 2018, a period when investors experienced a dizzying series of record highs, followed by a dramatic collapse and the return of long-dormant volatility.

The decline ended a nine-quarter streak of gains for the S&P 500 and the Dow Jones Industrial Average, with the weakness occurring broadly and across sectors and asset classes. Most of the 11 S&P 500 industry groups fell over the first three months of the year, as did every major category of fixed income. Gold—a traditional haven asset—was one of the best places to be, though it’s quarterly rise was relatively restrained. Bitcoin

BTCUSD, -10.39%

sometimes hailed as a form of “digital gold,” didn’t benefit at all.

Risk returned in early February, after a report on wage growth suggested that inflation may be returning to the economy, which spooked investors into think that the Federal Reserve might have to become more aggressive in raising interest rates to combat such an environment. Those worries led to a correction in both the Dow Jones Industrial Average and the S&P 500, the first for the major indexes in about two years (an atypically long time between 10% drops from a peak).

That was simply the first bit of turbulence for investors, who subsequently grappled with President Donald Trump announcing tariffs and suggesting other protectionist trade policies, and a controversy over how Facebook

FB, +4.42%

 handles its user data, a scandal that sparked a huge exodus from the social-media giant’s stock and weighed on large-capitalization technology shares, a group that had been—and continues to be—one of the market’s biggest leader.

The following table shows the move of major stock indexes and regions over the quarter. For emerging markets, a popular exchange-traded fund is used.

With the quarterly decline, both the Dow and the S&P snapped a nine-quarter streak of gains. This had been the Dow’s longest such streak since 1997.

Read: The simple reason the Dow is ending a 9-quarter win streak: Wall Street’s surging ‘fear index’

In the U.S., the stock market’s decline was widespread. Of the 11 primary S&P 500 sectors, nine of them posted negative returns over the quarter. The two positive groups—technology and consumer discretionary—saw their gains come almost entirely from the so-called group of FAANG stocks, which refers to a quintet of popular technology and internet stocks.

Sector Price move over the quarter
Utilities -4.2%
Telecommunications -8.7%
Materials -6%
Information technology 3.2%
Industrials -2%
Health care -1.6%
Financials -1.4%
Energy -6.6%
Consumer staples -7.8%
Real estate -5.8%
Consumer discretionary 2.8%

Read more: Tech is responsible for nearly all of the market’s 2018 advance—despite Facebook’s stock woes

Commodities posted mixed performance over the quarter, with crude oil rising and hitting its highest level in more than two years, but natural gas struggling. Among precious metals, the rise in gold, its third straight quarterly gain, was met with a pronounced decline in silver.

Fixed income was broadly lower throughout the quarter. Much of the trading was driven by Federal Reserve policy; the Fed raised interest rates at its March meeting, and it is expected to hike rates at least twice more in 2018. It also accelerated the path it expects to take over 2019 and 2020.

Don’t miss: Fed mistakes could spark ‘unusually fast’ bear market, ‘lost decade’ for stocks

Of particular interest to fixed-income investors is the flattening yield curve, a line that plots the yield on bonds running from shortest maturity to longest. A positive curve is usually upward sloping, with longer maturities, facing more unknowns on growth and inflation, yielding more their shorter-maturity counterparts.

In the quarter, the weakest Treasury group—based on popular ETFs that track the categories—were those with the longest maturities. There was also heavy weakness in “junk bonds,” which snapped a four-quarter streak of gains.

ETF Price move over the quarter
iShares Core U.S. Aggregate Bond ETF

AGG, +0.29%


iShares iBoxx $ Investment Grade Corporate Bond ETF

LQD, +0.45%


iShares iBoxx $ High Yield Corporate Bond ETF

HYG, +0.34%


iShares 1-3 Year Treasury Bond ETF

SHY, +0.04%


iShares 3-7 Year Treasury Bond ETF

IEI, +0.11%


iShares 7-10 Year Treasury Bond ETF

IEF, +0.20%


iShares 10-20 Year Treasury Bond ETF

TLH, +0.35%


iShares 20+ Year Treasury Bond ETF

TLT, +0.49%




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