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

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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.    

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

2 comments

  1. Don

    Now that commodities may have bottomed, will PC rebalance into that sector? Or were you systematically buying in in the down Trent? Why is this a relevant question? Or said differently, who cares?

    I do. And so will others. Many PC investors came to PC based PC’s theory/practice of portfolio management of based on relatively even sector (capital) weighting. So, based in that premise, PC SHOULD HAVE sold high performers and purchased commodities (or whatever is out of favor).

    So the question is….Did you?

    Reply
    • Marianne Ahlmann

      Marianne Ahlmann

      Hi Don,

      Thanks for your question! The answer is – Yes. While every portfolio is different, generally speaking we have periodically added to commodities as they declined. And we have periodically pared back stocks which have done well and added to sectors that have underperformed.

      Best,
      Personal Capital Team

      Reply

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