April 09, 2015
Dear Friends, Below is our first quarter review of the financial markets for 2015. Broader stock markets were basically flat and were held down by the anticipation of rising interest rates, the strength of the dollar and relatively high valuations in the U.S. stock market. From a strictly valuation standpoint, foreign stocks look more attractive than domestic stocks. We expect volatility to continue and stock market returns to remain muted for the near term. Investors should not be surprised by the potential for a more meaningful correction and should have a game plan for navigating through such circumstances. Please let us know if we can help you in any way. Matt Childs
Key Dates/Data Releases
4/1: Auto sales, ISM manufacturing report, construction spending
4/2: U.S. factory orders, international trade, jobless claims
4/3: (Markets closed) Unemployment/payrolls
4/6: ISM services report
4/7: JOLTS report
4/8: Federal Open Market Committee minutes
4/9: Jobless claims
4/14: Retail sales, producer price index (PPI)
4/15: International capital flows, Empire State manufacturing, industrial production
4/16: Housing starts, Philadelphia Fed manufacturing, jobless claims
4/17: Consumer price index (CPI), consumer sentiment, leading economic indicators, options expiration
4/22: Existing home sales
4/23: New home sales, jobless claims
4/24: Durable goods orders
4/28: Consumer confidence
4/29: Federal Open Market Committee announcement, GDP, home sales
4/30: Jobless claims
Quarterly Market Review: January-March 2015
Volatility continued to rule the domestic equities markets. After losing ground in January, the major indices had a strong February. March saw early losses, then solid gains, with the Dow industrials, S&P 500, and Russell 2000 all hitting closing highs, and the Nasdaq closing above 5000 for the first time in 15 years, just shy of its all-time high. But these gains were tempered by a late-month downturn, with all the major indices losing ground in five of the last seven trading days as investors, jittery about corporate earnings, took profits. The small caps of the Russell 2000, which are seen as having less international exposure, saw March's only gains, and also led all indices for the quarter, up almost 4% with the Nasdaq right behind at 3.5%. The S&P and Global Dow trailed, up .4% and .7% respectively, while the Dow industrials slipped into negative territory for the year.
The Fed's slower-than-expected approach to interest rate hikes caused a sharp but temporary drop in the U.S. dollar, which continued to gain strength during the quarter against the currencies of its major trading partners. While a strengthening dollar was good news for Americans traveling abroad last quarter, it added to investor angst because of the potentially adverse effects on the global profits of U.S. multinational corporations. In January, the benchmark 10-year Treasury note dropped below 2% for the first time since May 2013, with demand driving yields to as low as 1.68% that month, before stabilizing to end the quarter just under 2%.
Oil prices fell below $50 a barrel during the quarter, but that seemed to be a mixed blessing. Lower gas prices boosted consumers' spending power, but the sharp declines also raised questions about whether prices would fall so far that energy companies would cut back on jobs and/or ongoing operations. Even escalating tensions in the Middle East caused only a temporary spike back over $50, with U.S. spot crude prices closing the quarter under $48 a barrel, due to concerns that lifting sanctions against Iran could cause an increase in already abundant oil supplies. Gold, meanwhile, despite spiking to $1,300 in late January, finished the quarter almost exactly where it started, at roughly $1,183 an ounce.
As of March 31
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Domestically, all eyes will be on Q1 earnings and, equally important, any forward-looking guidance, to gauge the strong dollar's impact on future overseas profits. GDP, housing, and labor data will be watched closely to glean any possible clue about the timing of Fed interest rate hikes. Overseas, the Yemen situation, nuclear negotiations with Iran, and Greece's ongoing negotiations with its creditors will be monitored. Finally, as the "sell in May, go away" season approaches, equities could see continued market turbulence.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015.