First Quarter Market Review
Global equity markets staged an impressive rally in March rebounding from their February lows. Stabilizing energy prices, an aggressive European Central Bank (ECB) policy program and a dovish tone from the Fed overshadowed uncertain earnings and geopolitical turmoil. After its shakiest start to a new year on record, the S&P 500 Index rebounded to end the quarter up 1.35%. Emerging markets were the best performer for the quarter registering a gain of 5.71% after surging 12% in March. Following an extended period of low equity volatility, we have likely entered a new phase characterized by more frequent and historically normal market turbulence.
As equities and several diversifying asset classes declined at the start of 2016, core fixed income allocations advanced. International sovereign bonds were the best performing fixed income sector posting a gain of 9% (ex-U.S.) as the ECB’s aggressive easing pushed many sovereign yields into negative territory. The Barclays U.S. Aggregate Index posted its best quarter since the third quarter of 2011, up 3%. We continue to believe global bond exposure can help enhance investors’ core bond holdings by adding country and interest rate diversification. Furthermore, global interest rate differentials should support U.S. dollar strength and currency-hedged core exposure.
The Fed left rates unchanged at its March meeting noting low inflation and risks posed from global economic weakness. As a result the Fed reduced its growth forecasts and lowered its future Fed funds rate expectations. The March employment report however continues to suggest strength in the U.S. labor market and hiring gains continued to be fairly widespread. The U.S. added 215,000 jobs in March, the 21st month of 200K+ jobs gain in the last 25 months. The unemployment rate inched up slightly to 5.0% while average hourly earnings grew 2.3% year over year.
“Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.”
– Paul Samuelson, Nobel Prize-Winning Economist