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Monthly Market Recap – March 2016

April 1, 2016

A lot can change in 50 days. That’s how long it’s been since February 11, when the stock market was crumbling, the sky was falling, and investor panic (for many) reached its climax.

As we pointed out in last month’s Recap, the S&P 500 at that point had fallen double-digits in only six weeks and pessimism reigned on Wall Street. Fast-forward 50 days and the differences couldn’t be more obvious if you were comparing Presidential candidates.

From their Feb. 11 lows, equity prices have rallied 14-18% depending on which index you’re smiling at. The S&P 500 and Dow Jones Industrial Average both finished March with positive year-to-date numbers, something few would have predicted seven weeks ago.

All ten sectors in the S&P were positive in March and eight of those gained 6% or more. Energy (+9.31%) and Technology (+9.15%) were the highest flyers. It’s always fun to report on a month when the “worst” performer, Health Care (+2.77%), still provided significant gains.

Index March 2016 YTD 2016
DJIA +7.08% +1.49%
S&P 500 +6.60% +0.77%
NASDAQ +6.84% -2.75%

 

 

 

Momentum was strong from the start as the Dow surged nearly 350 points on March 1. That move was due in part to the People’s Bank of China lowering reserve requirements for Chinese banks. Early month data on US manufacturing and factory orders also came in better than expected. A key labor report released on March 4 highlighted steady employment gains (242,000 jobs added in February) and indicated fears of another US recession may be overdone.

Those economic numbers certainly helped bump stocks higher, but with the market having become so correlated to oil prices, it was clear any rally would not become sustainable without some stabilization in crude. Oil didn’t exactly shake its recent volatility in March, but the sharp movements moved in investors’ favor for a change. West Texas Intermediate Crude gained 13.6% from a month earlier and closed at $38.24/barrel. It climbed as high as $42/barrel on March 22.

The evolving details of global economic stimulus continue to be significant drivers of short-term movements and remain necessary to continue a bull market that officially turned 7 years old last month. To celebrate, European Central Bank President Mario Draghi announced on March 10 further interest-rate cuts, but more importantly the addition of investment-grade corporate bonds to the ECB’s asset purchasing program. That decision sent already depressed bond yields even lower, particularly in the Eurozone.

Federal Reserve Chair Janet Yellen did her part to alleviate investor concerns on March 16 by announcing no changes in Fed policy. Although a formal “no hike” to US interest rates was entirely expected, the announcement removed another potential hurdle to a rising stock market. Yellen acknowledged “risks from abroad” in describing the global economic environment and confirmed the Fed will continue “proceeding cautiously in removing policy accommodation.”

Consensus expectations now call for two rate increases by the Fed before year-end, with global economic pressures and inflation outlook being the two biggest drivers of specific timing.

Another trend boosting stocks in March was a weakening US dollar. Mid-month, the Bloomberg US Dollar Index weakened more than 1% on consecutive days versus a basket of global currencies. It’s the first time that occurred since December 2008. The dollar finished March nearly 5% weaker versus the euro. As we’ve discussed many times, a strong dollar has been a major headwind to the revenues of many global corporations based in the US. That headwind became a tailwind in March.

Home values nationally keep climbing. The latest data from the S&P/Case-Shiller Index show that homes as of Jan. 31 increased in value by 5.7% on average compared to a year earlier. Portland, Seattle, and San Francisco showed the largest increases.

As is typically the case when stocks are climbing higher, equities proved resistant to geopolitical unrest in March. Terrorist attacks in Belgium on March 22 claimed the lives of 32 people when two bombs exploded at the Brussels airport and a third detonated at a subway station near the headquarters of the European Union. Less than a week later, more than 70 people were killed, including 29 children, by a suicide bomber at an amusement park in Pakistan on Easter Sunday.

As far as the impact on financial markets, there is some concern that heightened threats of terrorism will hinder the flow of goods and services across European borders, and provide an additional obstacle to an economic recovery in the Eurozone.

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