Equity Markets Spring Forward in March

Just three months ago, investors harbored concerns about declining oil prices, an economic slowdown in China, and the tumult wrought on domestic equity markets. While concerns still remain, they’ve been tempered in recent weeks. Oil, for example, has climbed to around $40 a barrel, and China’s Shanghai Composite has experienced a nice little rally of its own. Domestic market performance picked up significantly, as well, following a volatile January and a relatively calm February. All three major domestic stock indices and the international EAFE index were able to stage a comeback for the month of March. And the S&P 500 and Dow Jones Industrial Average bounced back enough to erase their losses from January and end the quarter in positive territory.

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Federal Reserve Chair Janet Yellen has indicated that the central bank’s decision to raise short-term interest rates will be data dependent, with a primary focus on the job market and the inflation outlook. However, while the Fed’s economic outlook has not changed much since the mid-December policy meeting, officials are aware of greater downside risks to growth – and therefore, expect to proceed “cautiously” in normalizing monetary policy. Investors seemed to appreciate Yellen’s passive tone, and stocks rallied after she reaffirmed that the Fed will likely take its time in raising rates. The policy expectations of Fed officials vary, but most now anticipate just two rate hikes this year, instead of four.

Like Yellen, Raymond James Chief Economist Scott Brown sees signs of moderate growth and strong consumer fundamentals and housing data, but is keeping an eye on soft business fixed investments and the impact of a strong dollar. Election-year uncertainty may also come into play, fueling further caution among businesses.

We’ll be touching base with you shortly with more information in our quarterly letter to you. Here in Minnesota, it does feel like an early spring is in the air. Perhaps our equity markets feel touched by spring as well.

As always, please let us know any comments or questions.