What a start to 2016. First, a unexpected personal loss, then bad weather across the country. Stocks suffered a not good, very bad, horrible January and February leaving it up to March to rush to the rescue.
The Big Picture
The December 2015 rate hike by the Federal Reserve’s federal open market committee set a sour tone for the start of the new year. Already spooked by weakness in China’s economy, investors were shocked by the rapid decline in the price of crude oil and energy stocks.
Early February saw fear trump greed as investors chose the safety of bonds over the volatility of stocks. Economic data belied those fears as the economy grew, the labor market strengthened, manufacturing picked up while inflation remained tame.
March saw the negative sentiment reverse, helping propel the Dow Jones Industrial Average and the S&P 500 index into positive territory for the year. Not such good news for the NASDAQ, which lost nearly 3% for the first quarter of 2016.
The Federal Reserve’s open market committee met in March and left interest rates unchanged, noting that current economic conditions didn’t warrant further rate hikes at this time. While the labor force continues to grow, wages remain relatively stagnant. The housing market shows signs of cooling, with February new and single family home sales declining 6% and 7% respectively.
Inflation is running at an annual rate of 1.7%, beneath the Fed’s 2% target. The dollar’s weakness has lent support to commodity prices with crude oil and gold finding modest support from speculative buying.
I, Investor
April showers will bring May flowers, as the saying goes. April will also bring another Federal Reserve FOMC meeting. Prevailing wisdom is for no rate hike at this meeting while monitoring economic conditions here and abroad. The Fed’s chair, Janet Yellen, has suggested that any further rate hikes would be gradual, and that a rate hike at the April 26-27 meeting is unlikely.
First quarter earnings reports kick off with Monday’s release from Alcoa. Revenues and earnings per share are expected to decline for the third consecutive quarter. However, the earnings bar has been lowered so dramatically that it’s hard to imagine investors getting a negative surprise.
Consensus estimates for 1Q16 S&P 500 earnings is for anywhere from a 7% decline to as deep as an 8.5% decline, led by the energy sector which has endured a steep drop in crude oil prices. My guess is that the numbers won’t be as bad as that and there will be some bright spots, notable telecom and utilities. Dividend paying stocks will still hold allure to those seeking income in a very challenging and volatile environment.
Against a backdrop of international economic and political uncertainty, and a wild and crazy presidential campaign season here, expect trading range activity to persist. There’s always the possibility of some unforeseen crisis to blindside investors but, for the most part, anticipate trading range action unless data on tap show marked deviance from expectations.
The Fed’s beige book will be released this Wednesday. Look for modest growth with little inflationary pressures to continue in the 12 Federal Reserve districts. Wednesday’s March producer price index and Thursday’s consumer price index may bolster this outlook. Retail sales and consumer sentiment may offer a glimpse into the mind of the consumer.
Keep a close eye on international events; China and Germany’s pace of economic growth, the impact of refugees on the European economies and the ever present threat of terrorist attacks. Absent any surprise, expect a stock market correction in time rather than price.
A CORRECTION IN TIME?
What a start to 2016. First, a unexpected personal loss, then bad weather across the country. Stocks suffered a not good, very bad, horrible January and February leaving it up to March to rush to the rescue.
The Big Picture
The December 2015 rate hike by the Federal Reserve’s federal open market committee set a sour tone for the start of the new year. Already spooked by weakness in China’s economy, investors were shocked by the rapid decline in the price of crude oil and energy stocks.
Early February saw fear trump greed as investors chose the safety of bonds over the volatility of stocks. Economic data belied those fears as the economy grew, the labor market strengthened, manufacturing picked up while inflation remained tame.
March saw the negative sentiment reverse, helping propel the Dow Jones Industrial Average and the S&P 500 index into positive territory for the year. Not such good news for the NASDAQ, which lost nearly 3% for the first quarter of 2016.
The Federal Reserve’s open market committee met in March and left interest rates unchanged, noting that current economic conditions didn’t warrant further rate hikes at this time. While the labor force continues to grow, wages remain relatively stagnant. The housing market shows signs of cooling, with February new and single family home sales declining 6% and 7% respectively.
Inflation is running at an annual rate of 1.7%, beneath the Fed’s 2% target. The dollar’s weakness has lent support to commodity prices with crude oil and gold finding modest support from speculative buying.
I, Investor
April showers will bring May flowers, as the saying goes. April will also bring another Federal Reserve FOMC meeting. Prevailing wisdom is for no rate hike at this meeting while monitoring economic conditions here and abroad. The Fed’s chair, Janet Yellen, has suggested that any further rate hikes would be gradual, and that a rate hike at the April 26-27 meeting is unlikely.
First quarter earnings reports kick off with Monday’s release from Alcoa. Revenues and earnings per share are expected to decline for the third consecutive quarter. However, the earnings bar has been lowered so dramatically that it’s hard to imagine investors getting a negative surprise.
Consensus estimates for 1Q16 S&P 500 earnings is for anywhere from a 7% decline to as deep as an 8.5% decline, led by the energy sector which has endured a steep drop in crude oil prices. My guess is that the numbers won’t be as bad as that and there will be some bright spots, notable telecom and utilities. Dividend paying stocks will still hold allure to those seeking income in a very challenging and volatile environment.
Against a backdrop of international economic and political uncertainty, and a wild and crazy presidential campaign season here, expect trading range activity to persist. There’s always the possibility of some unforeseen crisis to blindside investors but, for the most part, anticipate trading range action unless data on tap show marked deviance from expectations.
The Fed’s beige book will be released this Wednesday. Look for modest growth with little inflationary pressures to continue in the 12 Federal Reserve districts. Wednesday’s March producer price index and Thursday’s consumer price index may bolster this outlook. Retail sales and consumer sentiment may offer a glimpse into the mind of the consumer.
Keep a close eye on international events; China and Germany’s pace of economic growth, the impact of refugees on the European economies and the ever present threat of terrorist attacks. Absent any surprise, expect a stock market correction in time rather than price.