Quarterly Performance Update
Bonds Prevailed in Roller-Coaster Quarter
First Quarter 2016
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It was a turbulent start to 2016 as weak global growth and plunging oil prices sent stocks tumbling into market-correction territory early in the quarter. A mid-February rebound in oil prices provided the catalyst for a late-quarter rebound among global stocks. Meanwhile, Treasuries and other high-quality bonds generally rallied on investor risk aversion and central bank accommodations.
Concerns about slowing growth in China, weak growth globally, and falling oil prices sank stocks in January and February. Although most central banks maintained aggressive stimulus programs, these efforts initially failed to calm investors’ fears. By mid-February, indications of possible production cuts that could help reduce the global oil supply glut lifted crude oil prices off their lows. This factor, combined with central banks in Europe, Japan, and China maintaining and expanding their aggressive stimulus plans, eventually helped spark a turnaround in investor sentiment and global stock markets’ performance. In addition, the Federal Reserve (Fed) adopted a more dovish tone, which gave investors another reason to rally around stocks.
After declining in January and February, broad U.S. and non- U.S. stock benchmarks generally rebounded in March. For the S&P 500® Index, the March rally (+6.78%) more than offset earlier losses, and the broad benchmark finished the quarter up +1.35%. Outside the U.S., developed market stock gains weren’t sufficient to offset earlier losses, and the MSCI EAFE Index returned -3.01% (in U.S. dollars) for the quarter. Emerging market stocks (MSCI Emerging Markets Index) represented the quarter’s bright spot, gaining +13.23% in March and +5.71% (in U.S. dollars) for the quarter, benefiting from a weaker U.S. dollar and stronger oil prices.
Recession fears and equity market volatility led to investor risk aversion that favored U.S. Treasuries and other high-quality bonds. In addition, aggressive central bank stimulus outside the U.S.—along with the Fed’s decision to delay another rate hike and reduce its rate-hike forecast for 2016 from four to two— helped drive down global bond yields and generate positive total returns. All sectors of the investment-grade U.S. bond market advanced, and the Barclays U.S. Aggregate Bond Index gained +3.03% for the quarter. Outside the U.S., European bond markets were among the best performers, led by the U.K., France, and Germany. The U.S. dollar was mostly weaker against major foreign currencies, lifting non-U.S. bond market returns for unhedged U.S. investors.
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Source: Barclays Indices
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