First Quarter in U.S. Stock Funds: The Return of Volatility

The markets were jolted back to reality in the first quarter after the halcyon days of 2017.

Volatility returned with a vengeance, with the markets making some of their biggest moves in months. After going all of 2017 without a move of 2% or more in absolute terms, the S&P 500 had six such moves in the first three months of 2018, capped by a 4% decline on Feb. 5. Simmering inflation fears, the prospects of a trade war with China, and revelations of

Despite the market's gyrations, some 2017 story lines carried over into 2018. Growth stocks continued to outperform their value counterparts, especially as the Federal Reserve's interest-rate hike in March--its sixth since December 2015 and the first under its new chairman, Jerome Powell--made dividend-payers less attractive and put pressure on REITs. Among growth stocks, large caps led their smaller peers, paced by the extension of

Winners

The Primecap team's patient, contrarian growth strategy served it well in the first quarter.

As U.S. President Donald Trump's saber-rattling on international trade shook many large caps, small-cap stocks held up rather well thanks to their reliance on the domestic economy.

Losers

Rising interest rates made real estate investments less attractive in the first quarter, and some of the worst-performing funds in the Morningstar 500 (a list of funds in the

Morningstar FundInvestor

newsletter that meet or clear some fundamental hurdles) had significant exposure to that sector.

One fund that didn't deliver on its expected downside protection was

For all category returns through the previous day, visit the Fund Category Performance page on Morningstar.com.