View From the Hill: Summary of 1st Quarter-2016

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Commentary

Equities

Oh what a difference a month makes and March certainly did as stocks made one of their biggest advances to salvage what almost became a losing quarter. Despite the extreme volatility experienced by investors extending from late December-2015 through mid February-2016, equities, excluding the Russell 2000 (-1.92%) and technology weighted Nasdaq-100 (-2.39%), delivered positive quarterly performances. While the SP-500 (+0.77%) barely nudged past breakeven, the DJ Industrials (+1.49%) almost doubled the performance of the benchmark index. The above indicates a bias towards value and large caps and this was underscored by the impressive results among dividend rich DJ Utilities (+15.71%) and blue chip DJ Transports (+5.80%). (See table below for quarterly performance data.)

Volatility

In January-2016, the VIX (-23.39%) came in like a lion hitting a high @ 32.09 and then went out like a lamb in March as it made a low @ 13.06 and closed @ 13.95. Of all the major asset categories, it had the weakest quarterly relative strength rating @ 5 on a scale of 0 to 100. (See table below for quarterly performance data.)

Commodities

Precious metals rebounded sharply as Gold (+16.38%) outperformed all other assets.  Energy prices exhibited signs of price support @ $26 per barrel for WTI Crude Oil (+3.43%) in February and followed through on its key bullish reversal pattern during March to earn the honor of “biggest winner” instead of loser. Still, neither gold, whether yellow or black, was enough to keep the CRB Index (-3.49%) from declining. However, a bottom pattern was initiated and suggests a high probability for further price support. (See table below for quarterly performance data.)

Bonds and Cash/Currencies

When it comes to interpreting monetary policy, the major cash/currencies –US Dollar Index (-4.16%), Euro: EUR/USD (+4.71%), and Yen: USD/JPY (-6.59%)– and treasury rates for 10-year Notes (-21.29%) and 30-year Bonds (-13.10%) are no slouches. Both asset classes called the Fed’s bluff. During the fourth quarter of 2015, the Federal Reserve swooped down on the markets with its hawkish rhetoric, but, since the start of the year, Yellen and company have gradually softened the tone to one more befitting of gentle doves. Rate increases will most likely continue to be deferred (at some point they have to turn off the spigot before we all drown in a flood of inflation) until the latter part of this year. (See table below for quarterly performance data.)

Real Estate

Another asset reflating due to a weaker dollar came in the tangible form of the DJ Real Estate Index (+4.12%) this quarter. Meanwhile the DJ Home Construction Index (-1.92%) sandbagged on investors until March before proving itself to be a reliable store of value. (See table below for quarterly performance data.)

Sectors

Not surprisingly, during times of fear, defensive sectors such as Consumer Staples (+5.09%) and dividend stalwarts like Telecom (+6.74%) and Utilities (+14.65%) tend to hold their ground during market corrections. Industrials (+4.64%) also distinguished themselves for the quarter. Notable laggards were Financials (-5.58%) and Healthcare (-5.90%), which in terms of quarterly relative strength ranged from average to below average and were both the weakest of all 10 sectors. (See table below for quarterly performance data.)

 


 

Quarterly Performance Review

 

Asset Class Indexes

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ETF Sectors

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