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Morningstar Market Commentary: First Quarter 2007

After strong start, markets turn volatile at quarter-end.

Sanjay Arya, 04/10/2007

After a strong finish to 2006, markets turned volatile toward the end of the first quarter. A series of gloomy news stories from the housing sector, especially in the subprime-mortgage segment, combined with other signs of a slowdown in the U.S. economy took their toll on market sentiment. Overall, the Morningstar US Market Index gained 1.4% in the first quarter, well off the highs scaled earlier in the year.

In our quarter-end review, Morningstar Indexes research analyst Arijit Dutta provides insight into the market's performance. A recap of some of the key observations:

  • Growth beat value. Within all three market-cap slices, growth indexes took a healthy lead over their core and value counterparts in what could be a signal of reversal in a multiyear trend in favor of value stocks.
  • Mid-caps hit the sweet spot again. As has been the case for the past several years, mid-caps (followed by small-cap stocks) were the market's most favored segment by size. Large caps finished a distant third.
  • Active managers did better in struggling corners of the market. Passive benchmarks remained fairly tough to beat in the first quarter, though active managers fared decently in laggard areas such as large-core. 

Sanjay Arya is director of Morningstar Indexes.

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