Portfolio Strategy Review Q1 2016

by | Apr 12, 2016 | Portfolio Strategy

We Muddle On

There are a few calling for a recession, but the consensus view is that the economy will muddle through with stable growth led by the US consumer; Europe looks on a solid path; China poses risks but it still has room to stimulate growth in the 5%-6% range. Some even think inflation may start to rise with emerging market growth and a rise in commodity prices. With global interest rates low, we will likely continue to see bouts of volatility in equity markets especially if traders begin to suspect a rise in rates is pending.

Asset Class Review

The quarter closed on an up note after a broad selloff in the first two months across global equity markets. Emerging markets showed particular strength in March led by Brazil. Much of the international weakness over the past few years has come from the strength of the dollar vs. other currencies. It may be that markets have overreacted to the Fed’s earlier pronouncements about raising interest rates. The Japanese Yen continues to strengthen even as it has moved forward with a negative interest rate policy to fight off deflation and spur growth.

For Q1 2016, the consensus estimates earnings decline of -9.1%; if this comes to pass, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since December 2008-September 2009. Of no surprise, the biggest drops in earnings are in the energy and materials sector, where low commodity prices have hurt profits. The financial sector, where activity has been very weak, is also expected to decline.


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