Risk assets turned on a dime mid-way through the first quarter, fully reversing losses across nearly all asset classes. Global stocks ended the quarter with a slight gain of 0.43% after hitting a low of -11.29% on February 11th.
The rebound was based on extraordinary efforts by central banks globally to provide economic liquidity — and despite continued deterioration of economic measures and corporate profits.
At the end of last year, the U.S. Federal Reserve raised interest rates for the first time in many years and indicated regular rate hikes would be coming in 2016. As the stock market declined following this Fed action, the Fed completely reversed it’s position, significantly reducing the probability of further rate hikes and even dropping hints of moving to negative interest rates. At the same time, the European Central Bank continued the interventionist party by announcing a dramatic open-ended round of further quantitative easing.
Stock markets responded predictably to these interventions, particularly given the rapid January-February decline which was ripe for a rebound. Currency-driven assets such as emerging markets rebounded even more dramatically as the U.S. Dollar lost some strength. Safe-haven assets ranging from core bonds to gold, which had already rallied earlier in the quarter, held steady as the stock market recovered.
The end result was a nearly flat quarter for global stocks, solid returns from conservative fixed income, and stellar returns from long Treasuries and gold. Gold posted its best quarterly return in 30 years — since 1986.
I will have more analysis for you in the coming weeks, including results for our Precedent Asset Management portfolios as we consolidate and review final first quarter data.