February turned into a strong month for stocks as the S&P 500 was up over 5 ½%. This more than made up for the slow January. Coincidentally, every February has been positive for the S&P since the market turned around in 2009.1 Bonds did not fare as well, as interest rates continued their volatile ways. Utility and real estate stocks were set back as a result of the interest rate movements.
As I am writing this, the Bureau of Labor Statistics just released the latest batch of jobs data. The report shows unemployment improving to 5.5% and 295,000 new jobs were created in February. 2 This encouraging news sparked more fear that the Fed would be raising the Fed Funds rate sooner as opposed to later. This triggered more volatility in interest rate movements and repeated some of the strange “good news equals bad news” that we saw last year. When the market sees rates moving up faster than anticipated, the market gets upset.
That is not the situation in Europe. In fact, some European countries are issuing debt with negative interest rates.3 Yes, negative. Investors are actually lending money to certain governments and agreeing to be paid back less than what was borrowed. What a crazy financial world we live in these days. Although we continue to move toward a global economy, we aren’t necessarily going to all be in the same stage of the economic cycle. Domestically, our long term rates have gradually decreased over the last few years thanks to the Fed’s quantitative easing programs. However, our short term rates have begun increasing, so negative interest rates don’t appear to be in our future. See the chart below to see the interest rate movements over time.
The fact that Europe is just now implementing some of the stimulus ideals that we used to claw our way out of the Great Recession give certain international investments a promising future. We also continue to believe the energy sector is ripe for a turn around. However, we still view these as satellite positions that would encompass a small part of one’s overall investment strategy. Domestic equities will continue to be the central focus for most of our client portfolios.
As we wait for this to unfold, we look forward to a real spring making an appearance and the continuation of the February rebound, not the February weather.
1 Thomson Reuters
3 Washington Post, http://wapo.st/1DqVboU
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