Week of February 29, 2016

Global markets were mixed last week as various indices flipped back and forth from positive to negative territory. The S&P 500 was up 1.58% while the NASDAQ Composite and Dow Jones Industrial Average were both up 1.92% and 1.51%, respectively.

Chinese equities, however, were down 3.25% as measured by the Shanghai Composite. The STOXX Europe 600 index, an index tracking stocks across the Eurozone, was up 0.30% for the week.

Brexit?

In what will undoubtedly be the focus of many investors, especially those throughout Europe, the United Kingdom will be voting on whether to stay in the European Union at the end of June. Responding to the news, speculating investors drove the British pound down to a new, seven-year low relative to the US dollar as the vote weighed on the currency and market sentiment. To add some perspective, the pound hasn't stayed below $1.40 per pound for an extended period since the mid-1980s. The ramifications of a "no" vote are varied and we will be watching the European markets closely as the vote approaches. The Bank of England has publicly commented that it is still too early to predict the outcome and they have not committed to raising interest rates if the pound continues to fall. Generally, all else being equal, central banks may raise interest rates when their currency has materially depreciated against its peers to drive demand for that currency as their government bonds are more attractive to foreign buyers.

Chinese Equities

Chinese stocks slogged through another tough week as investors poured out of equities. Despite the headline drop of 3.25%, a close look at intraweek volatility would tell another story. Last Thursday's fall of 6.4% in the Shanghai Composite Index was the worst since January 26th. While the main driver wasn't immediately clear, a number of factors, including a weaker yuan and general concerns over slowing global growth likely had an impact. Indeed, the People's Bank of China had been leading the currency lower relative to the US dollar. Their central bank sets the daily trading range for the yuan and their move to set the mid-point lower last week likely led investors to take that as a sign the economy may be slowing.

Not This Month…

After the markets drove oil prices higher on news that Saudi Arabia and other major producers would freeze production at January levels, the Saudi Oil Minister said last Tuesday that the country would not be capping production this month. This sent prices reeling, dragging the overall markets down the middle of last week. It looks like investors will have to wait until March to see if an agreement can be made and even then, an actual freeze may not provide the price support many are hoping for. Based on current estimates, there is roughly a 1 million barrel-per-day gap between current supply and demand. In spite of all this, oil ended up on news released late in the week that gasoline demand in the US was looking stronger.

Source: Morningstar Direct

Fun Story of the Week

It wouldn't be surprising if you looked at your calendar for February and wondered why it had 29 days instead of 28. After all, leap years occur only once every four years. However, those born on a leap year rarely forget it nor are they allowed to, likely bearing the brunt of many jokes. So why do we have leap years and leap days? Well, we all know our calendar lasts for 365 days but that includes a bit of rounding. It technically takes the earth 365 days, 5 hours, 48 minutes and 46 seconds to rotate completely around the sun, or 365.2422 days. That extra 0.2422 days can add up over time as our calendar is shorter, thus throwing off days, weeks and months if nothing is done to correct it. This is where the leap year comes in to rescue those that live and die by their calendars. If we look out over four years, a calendar of 365 days adds up to 1,460 total days. However, that extra 0.2422 days over four years adds up to roughly one extra day. Essentially, calendars are running behind for over 3 years before the leap year snaps them back in sync with every fourth year having 1,461 days. Now, the leap year doesn't solve the problem entirely. For those that have already checked the math above, they know that four years at 365.2422 days is actually 1,460.9688 days. While the difference is small, it can have a large impact over time. So, we skip the leap year every 100 years. But we also need to account for that rounding error as well. So every 400 years, there is a leap day in years ending with "00" that are divisible by 400. That means 2000 was a leap year despite it occurring every 100 years. 1800 and 1900 did not have leap days. Fortunately, this system should ensure accurate calendars for the next 3,333 years.

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* Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.  * DJIA: The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.  * STOXX EUROPE 600 INDEX: The Stoxx Europe 600 Index is derived from the Stoxx Europe total Market Index and is a subset of the Stoxx Global 1800 Index. With a fixed number of 600 components, the Stoxx Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region.  * S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.  * The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.  * SHANGHAI COMPOSITE INDEX: The Shanghai Composite Index is a market index of all stocks (A shares and B shares) that are traded on the Shanghai Stock Exchange. It tracks the largest publicly traded companies in China.  * Past performance does not guarantee future results.  * Charts and graphs should not be relied upon as the sole basis for any investment decision and are for general informational purposes only.  * Consult your financial professional before making any investment decision.  * This newsletter was prepared by CWM, LLC.

Sources:

Wall Street Journal, February 2016, http://www.wsj.com/articles/china-stock-markets-dive-in-their-worst-performance-in-about-a-month-1456404707

CNBC, February 2016, http://www.cnbc.com/2016/02/24/asia-stock-markets-focus-on-oil-price-bounce-us-equities-gains-earnings-from-south-32-airnz-citic-telecom-galaxy.html

Wall Street Journal, February 2016, http://www.wsj.com/articles/british-pound-sinks-to-seven-year-low-on-brexit-fears-1456311828

Wall Street Journal, February 2016, http://www.wsj.com/articles/saudi-oil-minister-production-wont-be-cut-to-reduce-global-supply-glut-1456246011

LTP, February 2016, https://www.grc.nasa.gov/www/k-12/Numbers/Math/Mathematical_Thinking/calendar_calculations.htm

Cleveland.com, February 2016, http://www.cleveland.com/datacentral/index.ssf/2016/02/feb_29_2016_your_leap_year_and.html

Financial Times, February 2616, https://www.ft.com/intl/cms/s/0/7fa04d70-d911-11e5-a72f-1e7744c66818.html#axzz40voTrOar