In Like a Lion (or Should We Say Bear), Out Like a Lamb
Friday, April 15, 2016
Talk about ringing in the New Year! Last year’s snoozer of a market immediately gave way to one of the wildest quarters in recent memory, as investors lived through two fully-formed markets that closely mirrored each other in astonishing V-like symmetry.
- Equity markets dropped briskly to open the quarter, pushing many global equity indices into bear market territory. Risk assets bottomed in mid-February, and then ushered in a relentless rally that ascended all the way through the end of March to allow the S&P 500 Index to gain 1.4% on the quarter, something that seemed inconceivable just weeks earlier.
- The long and short of the roller-coaster ride for equity markets can be attributed to an atypical fixation on the price of oil. The correlation we saw this quarter between oil and stocks was far higher than historical levels.
- We believe it is likely that the economy will continue to muddle along, posting sub par but still positive growth, for the course of the year. Though we may dodge an economic recession, we are currently wading through an earnings recession. However,earnings are expected to improve in the back half of the year.
- History has shown that markets with double-digit declines, but no recession, have proven to be excellent buying opportunities.
- The spread between 2-year and 10-year bonds is as flat as it has been since the Fed implemented emergency policy.Remarkably, 30% of developed nation sovereign bonds are now trading with negative yields.
- Our emphasis on income generation has our balanced portfolios positioned to take a little less risk in stocks and a little more risk in bonds, which we believe makes sense, given the current environment.
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