First Quarter 2016 – “Stalemate”
US equity markets ended the first quarter of 2016 with a modest gain of 1.3% after recovering from their worst start in modern market history. Equity indices were battered in early January; market turmoil abroad, specifically in China, sparked a global move out of risk assets. Uncertainty surrounding the continued drop in oil prices, the health of the financial sector, and concerns over decelerating global growth held even the most aggressive investors in check. The decline accelerated into mid-quarter, until it became clear that fiscal authorities were willing to step in and provide additional support. The ECB indicated that additional easing may take place following its meeting in March, while the Bank of Japan (“BOJ”) unexpectedly cut its benchmark interest rates to below zero. In the US, the Federal Reserve kept rates steady and indicated a willingness to hold off on additional interest-rate hikes. As the quarter progressed, the fiscal authorities’ need to normalize the monetary policy and their need to use it to promote growth settled into a tentative stalemate, which will likely result in lower interest rates for a longer period than market participants had anticipated.