Unless you have been living under a rock or in a coma and just waking up you have seen the crazy roller coaster that has been the stock market in the first quarter of 2016.
So in honor of this crazy quarter I bring you this quarter’s economic commentary brought to you by Taylor Swift’s song titles.
Shake It Off! Shake It Off!
The start of 2016 was terrible to put it nicely. We began the year by falling over 10%, as of February 10th, on the S&P but rebounded nicely in March with the Dow Jones Industrial Average, S&P 500 and Nasdaq up 7.22%, 6.78% and 6.94% respectively. For the quarter the Dow and S&P 500 moved into positive territory. Developed international markets were strong in March. The MSCI EAFE Index rose 6.51 percent, and the MSCI Emerging Markets Index recovered spectacularly from previous poor results, gaining 13.26 percent. For the quarter, the EAFE stayed in the red, losing 3.01 percent, though emerging markets climbed into positive territory, up 5.75 percent. (Bloomberg).
In the fixed income markets The Barclays Capital Aggregate Bond Index was up 0.92 percent in March, spurred by improvements in credit spreads. High–yield bond returns were evidence of this, as reflected in the Barclays Capital U.S. Corporate High Yield Index, which gained 4.44 percent. For the quarter, results for the aggregate bond and high–yield indices were 3.03 percent and 3.35 percent, respectively..
So what caused the March recovery?
There was a return of confidence as the dollar began to weaken and oil prices began to stabilize. These factors began to get investors to reenter the markets. The easy call at the beginning of the year would have been to bail out when the markets were declining and sit out the widely‐predicted start of a painful, protracted bear market. Some analysts were talking openly about another 2008‐9 drop in share prices. But 10% market declines are simply a part of the market’s normal turbulence, and anyone who spooks as soon as they see a month of bearish sentiment is likely to miss out on the subsequent gains. Since hitting their 2016 lows on February 11, both the S&P 500 index and the Nasdaq Composite have gained roughly 13% in value.
Out of the Woods…
The real US economy showed signs of slow growth for the quarter. Jobs growth remained strong with March creating 215,000 jobs, above an estimated number of 199,000. Wage growth continues to be low—up 2.3% today over a year earlier—but while that’s discouraging for workers, companies (and their bottom lines, and eventually their stock values) are benefiting from relatively cheap labor. It’s worth noting that the Institute for Supply Management’s manufacturing index reflected growth for the first time since last August, suggesting that manufacturing activity is picking up in the U.S. economy (Bloomberg). So we may not be out of the woods things are still pointing toward continued slow growth.
Stay, Stay, Stay…
Overall the equity markets continued to suffer from a strong dollar and low oil prices even with the strong end to the quarter. Global recovery risks still remain a concern as Britain will have a referendum vote on staying or leaving the European Union (EU) membership. The potential of an EU breakup has put some additional risk and worries on the European financial markets. The European Central bank has increased its bond buying program by one third which should help support the real economy in Europe (Bloomberg). China continues to have slower growth but it seems to becoming less of a concern for the US equity markets.
The markets recovery after a very frightening start to the quarter is encouraging. As always there are risks with investing but our mission as investors is to exercise patience when there is dislocation between the markets and the economy. While the economic recovery is not as strong as everyone would like it continues to plug along little by little. As investors we need to remember to properly allocate for our risk tolerance and remember that sometimes we will have these sharp swings like we saw in the first quarter of 2016.
If you would like to discuss my market views you can reach me in the office at 336-310-4233.
The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
No strategy, such as diversification, can assure success or protect against loss in periods of declining values.
Investing involves risk, including loss of principal
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
All indexes are unmanaged and an individual cannot invest directly in an index Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa.Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand
The Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
Barclays Capital U.S Corporate High-Yield Bond Index is an unmanaged market value weighted index composed of fixed-rate, publicly issued, non-investment grade debt.