THIS ISSUE

  • Markets Struggle in Choppy Seas in First Quarter
  • Outlook Remains Positive Despite Weak Start to the Year
  • What a Rising Dollar Means for U.S. Equities
  • The Fed’s Impact on Foreign Currencies
  • Oil Prices, Economic Implications, and Portfolio Positioning

From the Desk of Garrett D’Alessandro, CFA, CAIA, AIF®

Volatility returned in a big way in the first quarter. The S&P 500 and Dow Jones Industrial Average Index briefly posted new highs before both slid more than 2% from their peaks to finish essentially where they started. Investors found plenty to worry about, including a surging dollar that stoked fears about profits at manufacturing and multinational corporations, and more hints that the Fed is getting closer to raising rates. Other concerns included slower economic growth in China, widening conflicts in the Middle East, and the ripple effects of sharply lower oil prices on the energy sector.

While we would not be surprised to see volatility persist throughout the year, we remain positive on the U.S. economy and the potential for further equity gains. Companies are hiring and raising wages (the disappointing March employment report is likely to prove an anomaly), consumer confidence is climbing, gasoline prices are staying down, the U.S. Leading Economic Index (LEI) has risen for 13 months straight, and both inflation and interest rates remain low. We are also seeing some encouraging signs in Europe, where the European Central Bank’s quantitative easing program has boosted equity prices.

The bull market marked its sixth anniversary during the quarter, and while valuations are elevated, we believe they are not outlandish. Although this is one of the longer bull markets on record, bull markets do not die of old age – they are brought down by recessions, something we simply do not see on the horizon at present. We also do not expect a sharp or precipitate rate increase from the Fed, which is fully aware of the need to move deliberately. U.S. economic growth is gathering steam, and while that growth may be lower than many would like, lower can also mean longer.

With that being said, the Fed – and other central banks – are eventually going to have to normalize rates, which is going to be a delicate task indeed. There are also a number of geopolitical issues that could disrupt markets, and rest assured that we are monitoring them closely. Our overall stance is positive but vigilant.

We value your relationship and welcome hearing from you. If there is something you would like to discuss, please contact your advisor or portfolio manager. If I can be of assistance to you, please contact me directly at garrett.dalessandro@cnr.com.

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