Market Commentary – April 2016

Picture1It was a turbulent start to 2016. Ongoing concerns about slowing growth in China, weak growth globally, and falling oil prices sent stock prices plunging in January and February. Although most central banks maintained aggressive stimulus programs, these efforts initially failed to offset investors’ concerns about economic weakness and the struggling global oil markets. By mid-February, indications of possible production cuts that could help reduce the global oil supply glut helped crude oil prices rebound off their lows. This factor, combined with central banks in Europe, Japan, and China maintaining and expanding their aggressive stimulus plans, eventually helped spark a turnaround in investor sentiment and global stock markets’ performance.


U.S. Stocks: Late-Quarter Rebound Drove Gains

The stock market downturn that began at the end of December snowballed into a full-blown market correction by January 20, with the S&P 500 declining more than -10% to start the year. The risk-off trading continued until mid-February, when oil prices hit a bottom. Investor optimism gradually returned and the S&P 500 finished the first quarter with a gain of +1.4%, thanks to a March rally of +6.8%, which offset the index’s losses in January and February.

Investors entered the quarter wondering if the U.S. economy was on the verge of another recession. An increase in jobless claims, weakness in the manufacturing sector, and a slowdown in fourth-quarter 2015 GDP fueled the recession fears. Furthermore, in December the Fed had embarked on U.S. rate normalization, implementing its first interest rate hike in more than nine years and indicating more increases were in store for 2016. This combination of factors sparked a sharp sell-off among U.S. stocks.

The sell-off continued until mid-February, when oil producers indicated they would consider curbing supply levels to help bring oil prices off their lows. This sparked a turnaround in the oil markets, which led to a rebound in the energy sector. These events, combined with additional global central bank stimulus helped improve investor sentiment. By mid-March, stock investors found additional relief when the Fed reduced its 2016 rate-hike forecast from four to two, expressing dovish caution in the face of ongoing global economic headwinds.


Foreign Stocks: Emerging Markets Stocks Rallied, Outperformed Developed Markets

Foreign stocks faced the same challenges and followed a similar performance pattern as their U.S. counterparts. However, foreign developed markets generally ended the quarter with losses, while emerging markets rallied.

Economic data in Europe generally remained mixed. The region’s economy continued to slowly expand, unemployment inched lower, and manufacturing remained consistent with steady growth. However, consumer confidence sagged, the services sector showed signs of slowing, and inflation hovered in slightly negative territory. In response, the European Central Bank (ECB) in March announced a new package of stimulus measures.  Investors responded enthusiastically, driving European stocks higher in March. Overall, though, the late-quarter rally could not offset the steep losses in January and February, and European stocks generally declined for the quarter.

The mid-February recovery in oil prices provided a boost to emerging markets stocks, triggering a late-quarter rally. Signs China’s economy was stabilizing provided additional support, as did a weakening U.S. dollar.  Emerging markets stocks advanced more than +13% in March, offsetting earlier losses and driving a solid first-quarter gain of +5.71%.


Fixed Income: Yields Tumbled on Weak Growth, Central Bank Policy

Risk aversion returned to the financial markets, as concerns about weaker global economic growth, still-plunging oil prices, and a severe equity market sell-off triggered a flight to quality, pushing U.S. Treasury yields lower. Central banks in Europe, Japan, and China responded with additional stimulus measures, including negative deposit rates in Japan and Europe, while the Fed delayed another short-term interest rate hike, citing concerns about the global economy.

Against this backdrop, the U.S. Treasury yield curve flattened, with longer-maturity yields falling at a greater pace than shorter-maturity yields. All major sectors of the U.S. bond market advanced during the quarter. Treasuries and high yield corporate bonds registered the best performance while mortgage-backed securities and investment grade corporate bonds, while positive for the quarter, trailed other sectors of the bond market.

The roller coaster ride of the first quarter served to remind us why focusing on day-to-day or week-to-week movements in the financial markets can be hazardous to your financial health.  As we witnessed this past quarter, markets have and will always be very volatile over these short periods.  The best defense against this volatility is time.  As time progresses the back and forth nature of the markets smooth the short-term bumps and generate returns that are fairly stable around our long-term expected averages.  When markets become volatile, like this past quarter, please remember the role of time in reducing the risk of your long-term investment program.





The foregoing content reflects the opinions of The Windsor Group, Ltd. and is subject to change at any time without notice.  Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security.  There is no guarantee that these statements, opinions or forecasts provided herein will prove correct.  Past performance is not a guarantee of future results.  Indices are not available for direct investment.  Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.  All investing involves risk, including the potential for loss of principal.  There is no guarantee that any investment plan or strategy will be successful.