Equity markets rebounded in March as rate hike fears eased and healthy domestic economic data revealed consistent conditions, resulting in a resounding turnaround from the market lows experienced in February. Market volatility appears to be mellowing compared to a year ago (except for oil). “With Volatility trending lower assets further out on the risk spectrum, such as Emerging Markets, Small Caps, and High Yield rallied.”
This first quarter has seen a healthy run up in the prices of gold and silver, however the returns are fading as profit takers sell off. Some of the reason for the price moves, poor stock market return, fears about interest rate hikes, on going inflation worries and currency weakness. Some analysts believe that gold will drop back to support level of about $1,150 per ounce by third quarter; while Credit Suisse has increased its forecast for first quarter 2017 to $1,313 per ounce and Silver to $16.50 per ounce. Whom ever you believe it appears that at current prices gold and silly er are still pretty good buys.
The concern of a rapid rate increase by the Federal Reserve subsided towards the end of the 1st quarter, as Fed Chairperson Janet Yellen helped tame prior remarks made by fellow Federal Reserve members. Subdued inflation and economic growth expectations led the Fed to curtail its stance on predetermined rate hikes. The Fed identified “global economic and financial developments continue to pose risks”.
Labor Department data released for the first week in March showed that merely 253,000 Americans filed for unemployment, the fewest number since 1973. Economists view the lessening amount of unemployment applicants as a validation that the labor market continues to steadily strengthen.
Additionally, the Labor Department’s monthly employment report for March showed a 215,000 increase in jobs, with an increase in the unemployment rate to 5% from 4.9%, signaling that more people have entered the labor force.
Some analysts believe that oil may have found a bottom around $26 per barrel in the first quarter, alleviating fears of a further oil price drop. Oil prices recovered in March from persistent lows earlier in the year. This recovery will help strengthen the economy - a fair balance in oil prices will only help keep things moving.
Easing rate hike concerns led to the dollar’s derailment from its uptrend during the quarter, creating opportunities for additional exports, as American made products become less expensive for international buyers.
A new acronym arose from international central banks lowering rates to negative territories, NIPR (Negative Interest Rate Policy). The Bank of Japan adopted negative interest rates in January and lowered key lending rates to below 0%, nearly a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. Other countries meandering into the negative arena include Switzerland, Denmark and Sweden.
The ECB ramped up its economic stimulus efforts in Europe by increasing its bond purchases from 60 billion euros to 80 billion euros per month. In addition, the central bank will be buying both government bonds and investment grade corporate bonds. Markets welcomed the strategy of venturing into the corporate realm, sending bond prices higher due to a limited supply of the debt.
The economy continues to worry many people, I see many people who have just been laid off from their job, which is a very big concern. This gives rise to worries about a future recession - some analysts talk that we are long over due, others say that we have not fully recovered from the last "Great Recession". Personally, I think while the technical definition of a recession ended in 2009, we have not fully recovered. For many people it certainly does not feel like it has ended, as they are not any better off. They feel like they are still treading water. However I don't see the U.S. slipping into a recession until after the presidential election this fall, so maybe in the first half of 2017.
Sources: Fed, Dept. of Labor, Eurostat, ECB, Dept. of Energy, State Street Global Advisors