March Recap by Jack Moller

Janet Yellen: “Caution is especially warranted”

The stock market has continued its yo-yo behavior of the past couple of years as the mid-February market bottom held with the S&P 500 continuing its rally from there to get all the way back to even for 2016.  It has been quite a comeback after having its worst start to a year in history.  This, but again, shows the pointlessness in paying attention to the inevitable superlatives tossed about by the media in describing market moves.  These superlatives tend to trigger emotions that can be detrimental to good investing decisions and certainly bring the focus to short-term moves which are irrelevant to long-term investors. 

In mid March, the Fed met amid feelings that they would trim back their plans for four rate hikes in 2016, though this was counterbalanced by the recent uptick in inflation to near their targets and the unemployment rate breaking under 5%.  There was uncertainty as the avowed “data-dependent” Fed was caught between U.S. data which would seemingly green-light continued tightening and international developments indicating escalating potential for a global recession.  The market was surprised and delighted when Chairperson Janet Yellen’s statement turned much more “dovish” (desire to keep the liquidity flowing) than anticipated.  Stocks, bonds, and commodities all reacted positively to the continued tilt toward keeping interest rates extraordinarily low.

As I write this commentary, the S&P 500 is within just a couple percent of its all-time high set last May.  However, the S&P has been flying mostly solo recently as most other investment classes have suffered significant declines of 25% or more. While these asset classes have held back a diversified portfolio’s performance over the last few years, lower prices (better values) tend to be the catalyst for decent future returns. That, however, will depend on how globally diversified and disciplined an investor can be.