First Quarter Market Review

“Vision is the art of seeing what is invisible to others.”                                Jonathan Swift

Investing is a global activity. About 50% of the world’s equity market value is now outside of the United States. Not only does it matter where in the world you choose to invest, but it also matters what base currency you use. Normally currency movements tend to “wash out” over a period of time, but sometimes major currency movements can erase otherwise good returns. A good example of this is the difference over the last five quarters between the returns on International stocks for U.S.-based investors versus investors based in the local international markets. Over the last five quarters the S&P 500 Index is up about 15% and International stocks, in their local currencies, have appreciated almost 18%, outperforming their U.S. brethren. But since the U.S. dollar has risen sharply against the Euro and most other major currencies during this period, U.S.-based investors have seen a 0% return on their International stock investments. While currency volatility can be unpleasant in the short term, it can sometimes help and will even out over time. The U.S. dollar can’t appreciate against every other currency indefinitely. As countries with weaker currencies enjoy more competitive trade conditions, their currencies will ultimately rise versus the U.S. dollar. In the meantime, U.S. consumers will enjoy cheaper foreign goods, lower inflation and will get more for their money when travelling internationally.

Another major development during the quarter was the European Central Bank’s much anticipated start of a massive bond buying program in an effort to fight deflation, spur lending activity and jump-start the European economy. The early indications are that this effort is beginning to demonstrate some of the desired results.

Important Note: These materials are provided for informational purposes only.  Please do not assume that any information contained in this Insight serves as the receipt of, or as a substitute for, personalized investment advice from Madison.