Contributed by: Angela Palacios, CFP®
The relatively benign appearing performance year-to-date of the S&P 500 of 1.35% does not tell the full story of the storm beneath. Markets started out the year spooked by China and the prospects of four interest rate increases being projected by the Federal Reserve (the Fed). Recessionary fears seemed to spike mid-February and then recede as economic data such as retail sales, manufacturing, employment, and consumer sentiment came in slightly better than expected or at least didn’t surprise to the downside.
Janet Yellen, chair of the Fed, ended the quarter with a noticeably dovish speech justifying the Federal Open Market Committee’s lower path for rate increases by citing global growth risks. The Fed now anticipates only two interest rate increases this year instead of their original four. Meanwhile, interest rates overseas pushed farther into negative territory while the Bank of Japan introduced their own negative interest rate policy leaving the U.S. as one of the few havens in the world that is still providing yield.
Last Year’s Losers are this Year’s Winners
2015 positive market returns were driven very narrowly by just a handful of stocks. This year has turned on a dime with the worst performing companies of 2015 being the best performers in 2016. The below chart breaks the S&P 500 up into 10 groups based on 2015 performance. Group one represents the best performing stocks in 2015 and group ten represents the worst performing stocks in 2015. The green and red bars represent performance from each of these groups during the first quarter of 2016.
Moderation in the U.S. Dollar
The dollar slowing its steady advance has helped to ease some of the headwinds for commodities, namely oil, as well as emerging markets debt and equities. The dollar has given up some of its gains from 2015, due to lowered expectations of the Fed hiking rates. It is quite common for currency markets to over-react to the monetary policy differences that we are seeing between the U.S. and other countries (negative interest rates overseas versus interest rate increases here at home) so we may yet see the dollar move back into slow strengthening mode.
Summer Real Estate Sizzles
Current housing markets seem to have a severe lack of supply of single family homes similar to the late 1990’s and early 2000’s. Yet new homes being built are at much lower levels then they were during those years. Prices will likely continue their upward trend of the past few years as demand continues to exceed supply. Mortgage rates continue to be low especially after the Fed decided to put on the brakes of raising rates. All of these factors should equate to a favorable market for home sellers.
Here is some additional information we want to share with you this quarter:
Checkout the quarterly Investment Pulse, by Angela Palacios, CFP®, summarizing some of the research done over the past quarter by our Investment Department.
In honor of the Game of Thrones premier, Angie Palacios, CFP®, has also discovered a Game of Negative Interest rates that’s playing out in our world right now. Check out Investor Ph.D.
Confused by interest rates and interbank lending? Nick Boguth, Investment Research Associate, breaks it down for you in Investor Basics by using Game of Thrones.
It’s tax season, which also means refunds may be coming your way! Check out these scenarios from Jaclyn Jackson, Investment Research Associate, and see what the smartest plan for your refund is!
Quarters like this one remind us of the importance of diversification. While a well-diversified portfolio will likely never generate the highest returns possible it also shouldn’t generate the lowest returns. The primary goal is to manage your risk and keep the end goal of your financial plan at the forefront. The key to success in investing is developing that plan with realistic goals and then sticking to it even during times like February when it is tempting to deviate.
We thank you for your continued trust in us to help you through all types of markets to reach your goals. If ever you have questions, please, don’t hesitate to reach out to me, your planner or any other members of our staff.
Angela Palacios, CFP®
Director of Investments
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Angela Palacios and not necessarily those of Raymond James.