Market Recap – Euro Central Bank Drives Continued Stock Gains With Lower Rates

Market Digest – Week Ending 3/11

Stocks continued their attempt to claw their way back into positive territory for 2016. The S&P 500 gained 1.1%, up for a fourth consecutive week. The index is now down just 1.1% for the year. International stocks closed the performance gap. The FTSE All World ex US index is now down 0.9% for the year. Emerging markets are positive. Gains this week were driven by greater than expected stimulus from the European Central Bank cut its main interest rate to 0% and cut its bank deposit rate to -0.4%. It also increased the amount of monthly bond purchases to 80 billion euros.

Weekly Returns:

S&P 500: 2,022 (+1.1%)
FTSE All-World ex-US: (+1.7%)
US 10 Year Treasury Yield: 1.98% (+0.11%)
Gold: $1,250 (-0.7%)
USD/EUR: $1.115 (+1.3%)

Major Events:

  • Monday – Iron ore prices jumped 20% on speculation China will stimulate its economy.
  • Tuesday – Ten year Japanese bonds hit a record low yield of -0.1%.
  • Tuesday – Bernie Sanders unexpectedly won the Michigan primary, keeping his hopes alive, while Donald Trump cemented his lead. Marco Rubio fared particularly poorly.
  • Wednesday – Toshiba said it would enter exclusive talks to sell its medical device unit thought to be worth around $6 billion.
  • Thursday – ECB president Mario Draghi announced a bold easing package, lowering rates and increasing asset purchases. He also said he did not expect to cut rates again which reversed initial losses in the euro.
  • Friday – The IEA said oil prices may have passed their bottom and said non-OPEC production is likely to fall by 750,000 barrels per day this year, more than previously estimated.
  • Friday – Ben Carson endorsed Donald Trump for President.

Our take:

From 2009 through 2014, the Fed implemented a number of powerful and innovative stimulus measures. It lowered interest rates close to zero and bought $4.5 trillion in assets, or roughly $15,000 for every American. The long term implications won’t be known for years but the actions most likely helped the country emerge from the recession following the sub-prime crisis. They also drove up valuations for assets like stocks, bonds and real estate.

In those five years, the S&P 500 gained around 150% while international stocks rose about 60% in dollar terms. While this kind of spread is by no means unprecedented in either direction, it was sizable. Now, a full seven years after the height of the sub-prime crisis, the ECB is acting a lot like the Fed did previously. There is no way to know the future, but especially with more attractive valuations overseas, one could make a solid bullish case for international equities. We don’t try to time these moves, but we do believe in maintaining a diversified approach including about a third of equity holdings outside the US.    


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Personal Capital Logo

Like what you're reading?

Get tips, tricks, and tools sent right to your inbox.