Market Reviews 2015

Vineyard View for 2015

2015 Market Reviews

A volatile four quarter ended a frustrating 2015 in which the market gave the impression that it was in a tremendous hurry to go nowhere at all. The quarter began promisingly enough. After a punishing third quarter, markets reversed field in October to return to levels near their highs of the spring and summer. Conditions did improve in some respects, as the stock market in Shanghai also reversed its recent slide, oil prices generally stabilized, and Congress passed a spending bill removing the threat of a halt to the Treasury’s borrowing authority. But after October’s welcome gains the market’s tone turned sour. Soft economic indicators, worries about terrorism, foreign and domestic, and continued uncertainty about the prospects for global economic recovery conspired to keep the market from maintaining any kind of momentum. The market had anticipated the quarter’s most significant economic news, the Federal Reserve’s announcement that it would finally raise its target for short-term interest rates above zero, and its reaction to the event was mildly positive. But the year ended with markets drifting lower. The soft market only put a small dent into October’s gains, though, and the S&P 500 returned +7.04% for the quarter. Even after that gain, though, the S&P’s price level was down a bit for the full year. With dividends it eked out a return of +1.38%.

The US equity market’s little strength seemed concentrated in the largest growth stocks: An equal-weighted index of S&P 500 stocks returned +5.04% for the quarter and –2.20% for the year. The Mid-cap 400 index returned +2.60% (4Q15) and -2.18% (2015); and the Small-cap index returned +3.72% (4Q) and –1.97% (2015). Growth also out-performed value by unusually wide margins.[Index returns: Standard and Poors]

As has often happened in recent years, global equity markets tracked the US to a large extent. The MSCI Barra EAFE international equity index rose by +6.34% in local currencies for the quarter. The US dollar strengthened against other currencies. It ended the quarter at $1.0859 to the euro, against $1.1162 at the end of June. It strengthened to $1.4746 against the pound sterling, from $1.5116, and against the yen — to 120.27 yen, from 119.81, during the quarter. The currency effect was a negative for US investors, and EAFE returned +4.71% in US dollars. For the full year, EAFE returned +5.33% in local currencies, but –0.81% in US dollars. [Index returns:  MSCI Barra; Exchange rates:  Federal Reserve H.10 release]

Unsurprisingly, the Fed’s modest tightening move drove interest rates higher, particularly at the short end of the yield curve. The yield on the two-year US Treasury note ended the year at 1.06%, up from 0.64% three months earlier. The ten-year yield rose more modestly, ending December at 2.27%, compared to 2.05% at the end of September. The Barcap US Aggregate Bond index returned –0.57% for the quarter. It gained just +0.55% for the full year. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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Volatility continued as the market’s theme in December, giving the overall impression that the market was in a hurry to go nowhere at all. News reports of domestic terrorist activity didn’t particularly spook the market, but they may have prevented it from gathering much momentum. The market had anticipated the most significant economic news, the Federal Reserve’s announcement that it would finally raise its target for short-term interest rates above zero, and its reaction to the event was mildly positive. But several economic indicators seemed soft, and year-end trading was to the downside. For the month, the S&P 500 returned -1.58%. For the full year, the index’s price level fell a bit, but with dividends the index eked out a return of +1.38%. The little strength in the US equity market seemed concentrated in the largest growth stocks, however: An equal-weighted index of S&P 500 stocks returned -2.31% for December and -2.20% for the year. The Mid-cap 400 index returned -4.17% (Dec) and -2.18% (2015); and the Small-cap index returned -4.79% (Dec) and -1.97% (2015). [Index returns: Standard and Poors]

International equity markets reflected the same softness as those in the US, and the MSCI Barra international equity index returned -2.73% in local currencies. The US dollar was mixed against foreign currencies, in spite of a distinct difference between the Fed’s shift in the direction of monetary tightening, and other central bankers’ continued easing. The dollar strengthened to $1.4746 against the pound Sterling, from $1.5044 a month earlier. It slipped, however, against the yen and the euro. The dollar traded at $1.0859 to the euro and 120.27 yen to the dollar at year-end, from levels of $1.0562/euro and 123.22 yen/dollar a month earlier. The currency effect softened international equity losses a little, and EAFE returned -1.35% in US dollars. For the full year, EAFE returned +5.33% in local currencies, but -0.81% in US dollars. [Index returns: MSCI Barra; exchange rates: Fed H.10 release]

Unsurprisingly, the Fed’s modest tightening move drove interest rates higher, particularly at the short end of the yield curve. The yield on the two-year US Treasury note ended the year at 1.06%, up from 0.94% just a month earlier. The ten-year yield rose more modestly, ending December at 2.27%, compared to 2.21% at the end of November. The Barcap US Aggregate Bond index returned -0.32% for the month. It gained just +0.55% for the full year. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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After a wild round-trip over the course of the previous three months, the markets settled down to a calmer pattern in November. Corporate results were broadly in line with rather modest market expectations. Economic indicators, including a surprisingly strong October employment report, led many participants to believe that the Federal Reserve will likely finally begin to raise its interest rate target at the December meeting of the Federal Open Market Committee. (That’s my view, too.) Equity markets weakened a bit toward mid-month before recovering back to around where they had begun the month, and remaining there in spite of the rise in geopolitical tensions associated with the Paris attacks the week before Thanksgiving. For the month, the S&P 500 returned a modest +0.30%. Mid- and small-cap stocks fared better, with the Mid-cap 400 index returning +1.35%, and the Small-cap 600 returning +2.68%. [Index returns: Standard and Poors]

Global equity markets showed a bit of strength as well. The MSCI Barra EAFE international equity index returned +1.30% in local currencies. US investors missed that strength, though, because the apparently increased likelihood that the Fed will raise rates soon, combined with the easier money stance of central bankers in Europe and Japan, pushed the US dollar sharply higher against other currencies. The dollar strengthened by month-end to 123.15 yen, $1.0569 to the euro, and $1.5060 against the pound Sterling; from levels of 120.70 yen, $1.1042 to the euro, and $1.5445 to the pound Sterling, a month earlier. The currency move more than offset international stock market gains, and EAFE returned -1.56% in US dollars. [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 release and Yahoo! Finance]

Interest rate movements also reflected expectations that the Fed may soon raise rates. The yield on the two-year US Treasury note rose to 0.94% at the end of November, up from 0.75% a month earlier. The ten-year yield rose to 2.21%, from 2.16%. As a result of the uptick in rates, the Barcap US Aggregate Bond index returned -0.26% for the month. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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After a punishing third quarter, markets reversed field in October to return to levels near their highs of the spring and summer. The advance occurred in spite of a lukewarm employment report; decent, but not stellar, corporate earnings reports; and mixed signals from Federal Reserve governors concerning their thinking on the question of an end to the Fed’s policy of maintaining very low interest rates. Conditions did improve in some respects, as the stock market in Shanghai also reversed its recent slide, oil prices generally stabilized, and Congress passed a spending bill removing the threat of a halt to the Treasury’s borrowing authority. The gains were striking, as the S&P 500 added +8.44% for the month. While the gains were general, they were strongest among large-cap growth stocks. The Mid-cap 400 index returned +5.63%, the Small cap 600 index returned +6.10%. [Index returns: Standard and Poors]

The stock market gains were global in scope, as the MSCI Barra EAFE international equity index returned +7.92% in local currencies. The US dollar drifted against other currencies. It edged upward to 120.70 yen (10/31) from 119.81 (9/30), and it strengthened slightly, to $1.1042 against the euro at October 31, from $1.1162 a month earlier. It slipped against the pound Sterling, however, ending October at $1.5445 to the pound, compared to $1.5116 at the end of September. The currency movements dampened returns just slightly for US investors, and EAFE returned +7.82% in US dollars. [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 release]

While the stock market was rising, so were interest rates, with they yield curve making a nearly parallel shift upward. The yield on the two-year US Treasury note rose to 0.75%, from 0.64% at the end of September, while the ten-year yield rose to 2.16%, from 2.06% a month earlier. The price effect due to the change in rates just about offset the income from investment-grade bonds, and the BarCap US Aggregate Bond Index returned +0.02% for the month. [Index return: Barclays Capital; Treasury yields: US Treasury]

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For the first half of the third quarter, markets continued the pattern of directionless trading that had characterized the first half of the year. Market participants took some comfort in the apparent resolution of the Greek debt crisis, but other problems, including soft economic indicators and concerns about Puerto Rico’s ability to service its debt, kept investors nervous. Then in mid-August, the People’s Bank of China announced that it would devalue that nation’s currency, attention shifted to economic weakness in Asia, and stock markets around the world fell sharply for the rest of the month. Weakness in commodity prices, especially in oil, may also have contributed to the stock market’s drop. Markets stabilized early in September, but took another leg downward after the Federal Reserve announced that it was not yet ready to raise short-term interest rates. A bounce may have started on the last day of September, but for the third quarter, the S&P 500 index returned –6.44%. The Midcap 400 returned –8.50%, and the Small cap 600 –9.27%. [Index returns: Standard and Poors]

Overseas markets reflected similar uncertainties, and they tracked broadly along with the US market. The MSCI Barra EAFE international equity index fell by –8.98% in local currencies for the quarter. The US dollar was mixed against other currencies. It ended the quarter at $1.1162 to the euro, against $1.1154 at the end of June. It strengthened to $1.5116 against the pound sterling, from $1.5727, but it fell against the yen — to 119.81 yen, from 122.10, during the quarter. The currency effect was a negative for US investors, and EAFE returned –10.23% in US dollars.  [Index returns:  MSCI Barra; Exchange rates:  Federal Reserve H.10 release]

The weakness of the markets, along with the Fed’s statement, pushed interest rates lower, especially at the longer end of the yield curve. The yield on the two-year US Treasury note ended the quarter at 0.64%, just where it had been three months earlier, but the yield on the ten-year Treasury fell to 2.06%, compared to 2.35% at the end of June.  The Barclays Capital US Aggregate Bond index returned +0.68% for the quarter. [Index returns: Barclays Capital; bond yields: US Treasury]

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The stock market volatility from August carried into September, as investors appeared to continue to worry about a slowdown in economic activity around the world, especially in China, and continued weakness in commodities, especially oil. The market bounced around quite a bit for the first couple of weeks of the month, but it took another leg downward after the Federal Reserve announced in mid-September that it was not yet ready to raise short-term interest rates. An upward move on September 30 made the month’s results a little less awful, but the S&P 500 index nevertheless slipped by -2.47%. The Mid-cap 400 index returned -3.22%, and the Small-cap 600 returned -3.56%. [Index returns: Standard and Poors]

Global equity markets also continued to slide. The MSCI Barra EAFE international equity index returned -4.79% in local currencies. The US dollar’s performance against other currencies was mixed. It slipped to 119.81 yen from 121.26 at the end of August, but it strengthened slightly, to $1.1162 against the euro and $1.5116 against the pound Sterling, from $1.1194 and $1.5363, respectively, a month earlier. The overall effect on US investors was slightly negative; EAFE returned -5.08% in US dollars. [Index returns: MSCI Barra; exchange rates: Federal Reserve H.10 release]

The weakness of the markets, along with the Fed’s statement, pushed interest rates lower. The yield on the two-year US Treasury note fell to 0.64% at the end of September, from 0.74% a month earlier. The ten-year yield fell to 2.06%, from 2.21% on August 31. The bond market advanced, and the Barcap US Aggregate bond index returned +0.68% for the month. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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After spending most of the year so far looking for direction, markets finally found one in August, and it pointed downward. Equity markets fell hard beginning at about the middle of the month. The proximate cause of the drop appeared to be action by the People’s Bank of China to devalue that nation’s currency, and nervousness about China’s growth prospects was surely a factor. But much of the selling appeared to represent forced selling by highly-leveraged investors in the face of a sharp increase in market volatility. Some investors may also have shifted portfolio allocations. The markets were quite volatile during the month, with some days showing sharp downward moves, and others having sharp advances. Overall, though, markets fell substantially, with the S&P 500 index returning -6.03% for the month, returning it to its levels of a year or so ago. The fall was fairly uniform, with the Midcap 400 index returning -5.58%, and the Small cap 600 index returning -5.18%. [Index returns: Standard and Poors]

The selloff was global in scope, and the MSCI Barra EAFE international equity index returned -7.65% in local currencies. The market volatility did not extend to currencies, though, as the US dollar was mixed against others. The dollar slipped to end August 121.24 yen from 123.94 at the end of July, and to $1.121 against the euro, compared to $1.1028 a month earlier. The dollar strengthened a bit against the pound Sterling, though, ending August at $1.535 to the pound from $1.5634 on July 31. The currency movements had little overall effect, and EAFE returned -7.36% in US dollars. [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 Release and Yahoo! Finance]

The market volatility gave rise to a good deal of comment about whether or not we should expect the Federal Reserve to begin raising short-term interest rates in September. The debate on that point was inconclusive, but overall during the month the yield curve did flatten a bit, with short-term rates inching up. The yield on the two-year US Treasury note ended August at 0.74%, up from 0.67% at the end of July. The ten-year yield rose just one basis point, to 2.21%, from 2.20% a month earlier. The overall bond market fell, and the BarCap US Aggregate Bond index returned -0.14% for the month. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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Equity markets in July continued their frustrating pattern of running at stall speed, slipping briefly and sharply, and then turning back up to approach their highs of the year. News during the month was mixed. July saw the beginnings of a partial resolution to the Greek debt crisis, in which Greek Prime Minister Tsipras yielded to most of the demands of that nation’s Eurozone creditors, calming markets. At the same time, though, corporate earnings reports were mixed, economic indicators were soft, and Puerto Rico’s government made clear that it would not be able to service its public debt. Markets stumbled as a result, but a late-month advance brought the total return on the S&P 500 index to +2.10% for the month. That apparent strength was quite narrow, however – the Mid-cap 400 index returned +0.14%, and the Small-cap 600 index returned -0.85%. Value also lagged growth significantly. [Index returns: Standard and Poors]

International equity markets showed a similar, and similarly narrow, advance. The MSCI Barra EAFE international equity index returned +3.52% in local currencies, while the Emerging Markets index returned -4.36%. Perhaps in anticipation of a forthcoming increase in US interest rates, the US dollar strengthened modestly against other currencies. It strengthened to $1.1028 to the euro and $1.5634 to the pound Sterling on July 31, from $1.1154 and $1.5727, respectively, a month earlier. The currency movement worked against US investors, and EAFE returned +2.08% in US dollars, and the Emerging Markets index returned -6.93%. [Index returns: MSCI Barra; Currency rates: Federal Reserve H.10 release]

The combination of economic news and Fed anticipation produced a flattening of the yield curve. The yield on the two-year US Treasury note rose to 0.67% on July 31 from a month earlier, while the 10-year yield fell to 2.20%, from 2.35% at the end of June. The Barcap Aggregate US Bond index returned +0.70% for the month. [Index returns: Barclays Capital; US Treasury yields: US Treasury]

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Market participants have continued to monitor developments in the major areas of concern that figure to influence future returns – the ongoing negotiations over debt relief (or not) in Greece, the pace of economic activity and its possible influence on Federal Reserve policy, and the price of oil and the pace of oilfield investment and production. Events have continued to move slowly in all those areas, and the market action has continued to seem directionless. Corporate earnings reports came in broadly in line with expectations, but other economic indicators were soft. First quarter growth in Gross Domestic Product was disappointing, although the softness had mostly to do with a decrease in capital investment among US shale oil producers, and a drop in exports due to the strong US dollar and weaker economic performance elsewhere in the world. At the very end of the quarter, Greek Prime Minister Tsipris’s surprise announcement of a referendum on the proposed terms of further European Union support of his country further confused an already fraught situation. Finally, news that Puerto Rico may have difficulty servicing its debt added jitters to the market. After all that, though, the S&P 500 index returned +0.28% for the quarter, while the Midcap 400 returned –1.06%, and the Small cap 600 +0.19%. [Index returns: Standard and Poors]

Economic uncertainty, particularly concerning Greece, told on overseas markets. The MSCI Barra EAFE international equity index fell by –2.83% in local currencies for the quarter. The combination of shifting expectations regarding US rate policy and a belief by some that the resolution of the Greek situation could strengthen the euro caused the US dollar to weaken against European currencies. The dollar ended the quarter at $1.114 to the euro, against $1.0741 at the end of March. It also weakened to $1.571 against the pound sterling, from $1.485. It edged up against the yen, though — to 122.40 yen, from 119.96, during the quarter. The currency effect was a boost for US investors, and EAFE returned +0.62% in US dollars. [Index returns:  MSCI Barra.  Exchange rates:  Federal Reserve H.10 release, Yahoo! Finance.]

Market expectations of future Fed policy remain divided, but the trend in interest rates seems to be toward higher rates, and a steeper yield curve.The yield on the two-year US Treasury note ended the quarter at 0.64%, up from 0.56% three months earlier; while the yield on the ten-year Treasury rose to 2.35%, compared to 1.94% at the end of March. The Barclays Capital US Aggregate Bond index returned –1.68% for the quarter. [Index returns: Barclays Capital; bond yields: US Treasury]

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As has been the case since the first of the year, markets spent June unsuccessfully trying to find a direction in which to move. Stock market indices remained near record highs, but a confusing set of cross-currents prevented them from either falling back too much or advancing further. Economic growth remains moderate but not strong, and market participants disagree on when to expect the Federal Reserve to begin raising interest rates. Greek Prime Minister Tsipris’s surprise announcement of a referendum on the proposed terms of further European Union support of his country further confused an already fraught situation. Finally, at the very end of the month, news that Puerto Rico may have difficulty servicing its debt added jitters to the market, and US stocks sold off somewhat. For the full month, the S&P 500 index lost -1.94%. The Madcap 400 index fell by -1.32%, but the Small cap 600 returned +1.03%. [Index returns: Standard and Poors]

Economic uncertainty, particularly over how events would unfold in Greece, also told on overseas markets. The MSCI Barra EAFE international equity index fell by -4.43% in local currencies. The combination of shifting expectations regarding US interest rate policy and a belief by some that the resolution of the Greek situation could strengthen the euro shifted currency exchange rates away from the US dollar. The dollar slipped to $1.114 against the euro, from $1.0954 a month earlier. It also fell to $1.571 against the pound Sterling, from $1.5286; and to 122.4 yen, from 123.98 at the end of March. The currency effect mitigated the losses for US investors, and EAFE returned -2.83% in US dollars. [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 release and Yahoo! Finance]

Market expectations of future Fed policy may be divided, but the trend in interest rates seems to be toward higher rates, and a steeper yield curve. The yield on the two-year US Treasury note edged upward to 0.64% from 0.61% a month earlier. The ten-year yield, however, rose more sharply, ending June at 2.35%, up from 2.12% at the end of May. As a result, the Barcap US Aggregate Bond index fell by -1.09% for the month. [Index returns: Barclays Capital; interest rates: US Treasury]

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As spring has worn on, market participants have continued to monitor developments in the major areas of concern that figure to influence future returns – the ongoing negotiations over debt relief (or not) in Greece, the pace of economic activity and its possible influence on Federal Reserve policy, and the price of oil and the pace of oilfield investment and production. Events have continued to move slowly in all those areas, and the market action has continued to seem directionless. The US stock market drifted near its recent levels, unable to find reason either to move further past its recent all-time highs or to fall back. For the month, the S&P 500 managed a return of +1.29%; the Mid-cap 400 returned +1.78%; and the Small Cap 600 returned +1.53%. Growth was stronger than value in all three capitalization ranges. [Index returns: Standard and Poors]

International stocks also edged higher, and the MSCI Barra EAFE international equity returned +1.55% in local currencies. A generally upward bias in US interest rates, coupled with continuing monetary easing in Europe and Japan, led to a strengthening of the US dollar against other currencies. The dollar jumped to 123.98 yen, compared to 119.86 yen a month earlier. It also strengthened to $1.0994 to the euro and $1.5286 to the pound Sterling; from $1.1162/euro and $1.5328/pound. The strengthening dollar worked against US investors, and EAFE returned -0.51% in US dollars. [Index returns: MSCI; Currency rates: Federal Reserve H.10 release]

The tone in interest rate markets continued to lean toward higher rates, and rates did rise a bit. The yield on the two-year US Treasury note crept up to 0.61%, from 0.58% on April 30; and the ten-year yield rose to 2.12%, from 2.05%. As a result, the BarCap US Aggregate Bond index fell, returning -0.24% for the month of May. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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April wasn’t a particularly cruel month this year, but it wasn’t overly kind either. Instead, the markets churned up and down in response to news on a range of topics including the ongoing fiscal problems in Greece, the price of oil, the condition of the economy, and the possible future course of interest rates. Corporate earnings reports came in broadly in line with expectations, but other economic indicators were soft. First quarter growth in Gross Domestic Product was disappointing, although the softness had mostly to do with a decrease in capital investment among US shale oil producers, and a drop in exports due to the strong US dollar and weaker economic performance elsewhere in the world. Even so, US equity markets touched all-time highs before falling back at the very end of the month. For the full month, the S&P 500 returned +0.96%. The gain was unusually concentrated in the largest stocks, though – the Midcap 400 index lost -1.49%, and the Small cap 600 lost -2.33%. [Index returns: Standard and Poors]

Equity markets were firm elsewhere in the world, as the MSCI Barra EAFE international equity index returned +1.15% in local currencies. At the same time, the US dollar gave back much of its recent strength against European currencies. The dollar fell to $1.1162 against the euro and $1.5328 against the pound Sterling, compared to $1.0744 and $1.4850, respectively, a month earlier. The dollar also eased against the yen, ending April at 119.86, just a bit lower than its 119.96 level of the end of March. The currency move benefited US investors, and EAFE returned +4.08% in US dollars [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 release]

The Federal Reserve continued to signal its intention to begin raising interest rates in the not-too-distant future, but remained coy as to the timing. The bond markets responded by selling off modestly, resulting in a steepening of the yield curve. The yield on the two-year US Treasury note ended the month unchanged at 0.58%, but the ten-year yield rose to 2.05%, from 1.96% at the end of March. Bonds fell in value overall, and the Barcap US Aggregate Bond index returned -0.36% for the month. [Index return: Barclays Capital; bond yields: US Treasury]

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The US stock market spent the first quarter of 2015 swinging sharply, first one direction and then the other, but it ended up not far from where it finished 2014. The volatility reflected uncertainty from a number of cross-currents. The economic impact of the sharp drop in the price of oil remains ambiguous; the prospects for debt relief or other assistance that could prevent a disorderly exit from the Eurozone by Greece remain uncertain; and the timing and path of any normalization of monetary policy by the Federal Reserve remain unclear. Meanwhile, corporate earnings reports and economic data were generally mildly disappointing. US markets fell in January, rallied strongly in February, and then slipped in March. For the full quarter, the S&P 500 returned +0.95%, while the Mid-cap 400 returned +5.31%, and the Small-cap 600 +3.96%. [Index returns: Standard and Poors]

Overseas markets, especially those in Europe, responded strongly to the start of the European Central Bank’s program of asset purchases — a European program of quantitiative easing. For the quarter, the MSCI Barra EAFE international equity index jumped by +10.85% in local currencies. Even more striking was the advance in the US dollar against European currencies, a result primarily of the Federal Reserve’s signaling that monetary tightening may be on the horizon just as the European Central Bank began further, dramatic monetary stimulus. The dollar ended the quarter at $1.0741 to the euro, against $1.2101 at the end of December. It also strengthened to $1.485 against the pound sterling, from $1.5578. It inched up to 119.96 yen, from 119.85, during the quarter. The currency effect was harshly negative for US investors, tempering EAFE’s return to +4.88% in US dollars.  [Index returns:  MSCI Barra.  Exchange rates:  Federal Reserve H.10 release.]

Interest rate markets responded calmly to the Fed’s policy moves and announcements, and the end result was a moderate decline in interest rates. The yield on the two-year US Treasury note ended the quarter at 0.56%, down from 0.67% three months earlier, while the yield on the ten-year Treasury fell to 1.94%, compared to 2.17% at the end of December.  The Barclays Capital US Aggregate Bond index returned +1.61% for the quarter. [Index returns:  Barclays Capital; bond yields:  US Treasury]

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Skittishness returned to the US stock market in March. US large-capitalization stocks sank, then recovered, and then sank again as the month’s earnings reports and economic data releases generally disappointed market participants. The economy wasn’t the only source of uncertainty confounding the markets. Doubts over the progress of negotiations with Iran, continued uncertainty about Greece’s status in the Eurozone, and gyrations in the price of oil all muddied the picture as well. At the same time, the Federal Reserve signaled that it is moving closer (how close? there’s no consensus) to normalizing monetary policy, while the European Central Bank (ECB) began its own asset purchase program. Through all the noise, the S&P 500 index ended the month with a loss of -1.58%, though the Midcap 400 added +1.32%, and the Small cap 600 returned +1.60%. [Index returns: Standard and Poors]

The ECB’s asset purchase program provided the backdrop for a rise in overseas stocks, especially in Europe. The MSCI Barra EAFE international equity index added +1.31% in local currencies. However, the sharp difference in monetary policy between the US and Europe led to a sharp rally in the US dollar against European currencies. The dollar strengthened to $1.0741 to the euro and $1.485 to the pound Sterling at the end of March, from levels of $1.1197 and $1.5439 a month earlier. The dollar also rose modestly against the yen, ending March at 119.96, compared to 119.72 at the end of February. The currency move was adverse to US investors, and EAFE returned -1.52% in US dollars. [Index returns: MSCI Barra; currency rates: Federal Reserve H.10 release]

Despite the monetary policy signals from the Federal Reserve, the soft economic data pushed interest rates modestly lower in March. The two-year US Treasury note yielded 0.56% at March 31, down from 0.63% a month earlier. The ten-year yield also fell, to 1.94% from a month-earlier level of 2.00%. The Barcap US Aggregate Bond index returned +0.46% for the month. [Index returns: Barclays Capital; Treasury note yields: US Treasury]

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After starting 2015 poorly, equity markets recovered sharply in February. Much of the market’s attention focused on Europe. Negotiators from Greece and the European Union reached an interim agreement giving Greece enough fiscal breathing room to avert, at least for now, a possible default and exit from the euro. At the same time, the European Central Bank prepared to begin its program of market purchases of fixed income securities, a European version of quantitative easing. Those developments, combined with reasonably favorable economic and corporate news in the US, drew buyers back into the market. The S&P 500 rose sharply, returning +5.75% for the month. The Midcap 400 index returned +5.12%, and the Small Cap 600 index returned +6.03%. [Index returns: Standard and Poors]

Those developments in Europe were also supportive of global equity markets in general, and the MSCI Barra EAFE international equity index returned +6.22% in local currencies. Not surprisingly, the US dollar strengthened relative to the euro, ending February at $1.1197 to the euro, compared to $1.1290 a month earlier. The dollar also strengthened to 119.72 yen, from 117.44 at the end of January. It slipped, however, to $1.5439 against the pound Sterling, from $1.5072 on January 31. EAFE was still strong after taking into account currency movements. The index returned +5.98% in US dollars. [Index returns: MSCI Barra; currency rates: Fed H.10 release]

The reversal in market direction also affected bonds. Interest rates, which fell in January, rose markedly in February. The yield on the two-year US Treasury note ended February at 0.63%, up from 0.47% at the end of January. The 10-year Treasury yield also rose, to 2.00% compared to 1.68% on January 31. Accordingly, bonds sold off, and the Barcap US Aggregate Bond index returned -0.94% for the month. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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January proved to be yet another month in which economic uncertainties conspired with near-record price levels for stocks to exert downward pressure on the markets. The main economic factors were the startling drop in oil prices and renewed uncertainties about the economic health of the southern Eurozone, particularly Greece. While lower energy prices seem likely to benefit consumers and industrial users, they weighed heavily on both the energy and financial sectors, with the net result that the overall market declined for much of the month. It rallied back briefly around January 22, as European Central Bank president Mario Draghi announced a substantial program of monetary stimulus in Europe. The weak tone returned, however, as mediocre earnings results and economic indicators, along with the election victory in Greece by the party most skeptical of the policies Greece had adopted in exchange for debt relief from the rest of Europe, undermined confidence. For the month, the S&P 500 returned -3.00%. The Mid-cap 400 index returned -1.12%, and the Small-cap 600 returned -3.49%. Growth performed better than value in all capitalization ranges. [Index returns: Standard and Poors]

Largely because of Mr. Draghi’s stimulus program, overseas stocks performed strongly, with the MSCI Barra EAFE international equity index returning +3.00%. With monetary policy in Europe and the US moving in opposite directions, however, the US dollar continued its advance against European currencies. It strengthened to $1.129 against the Euro and $1.5026 against the pound Sterling at January 31, from $1.2101 and $1.5578, respectively, a month earlier. The dollar slipped a bit, to 117.44 from 119.85, against the Japanese yen, but the overall currency effect worked against US investors in overseas stocks. EAFE returned +0.49% in US dollars. [Index returns: MSCI Barra; Currency rates: Federal Reserve H.10 release]

The combination of stock market weakness and concerns that the drop in oil might translate to deflation in the US drove interest rates sharply lower. The yield on the two-year US Treasury note ended January at 0.47%, down from 0.67% at the end of December. The ten-year yield fell even more sharply, to 1.68% at January 31 from 2.17% a month earlier. As a result, bonds performed well, with the BarCap US Aggregate Bond Index returning +2.10% for the month. [Index returns: Barclays Capital; Treasury yields: US Treasury]

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All Market Reviews written by Dr. Jonathan Tiemann. All rights reserved.