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Week of March 21, 2016

Domestic stocks notched another positive week as investors appeared more willing to take on equity risks. All our domestic indices were up with the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite Indices posting 2.21%, 1.33% and 0.98%, respectively.

Internationally, European stocks, as measured by the Stoxx Europe 600 Index, were down 1.16%, largely driven by simmering concerns over a possible "Brexit" later this summer. Asian stocks were mixed with the Japanese Nikkei 225 Composite off 1.27% while Chinese equities were up 5.2% as measured by the Shanghai Composite Index.

US Stocks Turn Positive

The Dow Jones Industrial Average and the S&P 500 indices moved into positive territory for the first time this year. However, the march up from their 2016 trough is no small feat. Both indices were down more than 10% at their lowest the middle of February. Investors are pointing to an improving US economy and rising oil prices as the main triggers. Indeed, one could look back to February 12th when a US retail sales report showed that the American consumer maintained their spending despite the market rout. Nearly three weeks after, the Bureau of Labor Statistics released a surprisingly strong jobs report and data indicating US oil producers had finally started cutting production gave crude and energy companies a much needed lift. All the while, equities rallied from their February lows on the data, posting the first five-week string of gains since last November. While the S&P 500 and the Dow Jones Industrial Average are in positive territory, the tech-heavy NASDAQ Composite Index; however, is still down 4.33% for the year. As the chart below indicates, the Utilities and Energy sectors have been the main drivers of performance, posting a positive 13.1% and 5.6% year-to-date, respectively.

Chart 1 03.21.16

Source: Morningstar Direct

Federal Reserve Meeting

US stocks traded in a narrow band on Wednesday in anticipation of the Federal Reserve's comments on the markets. As expected, the Fed did not raise rates from their current 0.25-0.50% range but did move their year-end target yield to 0.875%. This translates into two more rate increases if the Fed stays on track and half the number of increases the central bank was anticipating going into the beginning of 2016. What is also interesting to note is that the markets were already expecting the Fed to only raise rates two more times going into 2016. This change in stance means the Fed's expectations are more closely aligned with those of investors. Looking at the statement more specifically, the Fed's risk assessment, a closely watched segment of the report, noted that the current market and the global outlook "continue to pose risks." This was likely a factor in the Fed's decision to keep rates steady. We would note that our central bank is one of the few around the world contemplating rate increases. As we have mentioned in our previous commentaries, many international central banks are reducing rates, sometimes into negative territory. Despite the current environment and the Fed's noted market risks, the central bank expects economic output to grow by 2.2% for 2016, a slight 0.2% decrease from their December estimates.


Gold had a strong start to the year as the precious metal is up nearly 20% year-to-date. This was largely driven by investor fears over slowing global growth as the markets have historically viewed gold as a hedge asset. In reaction to the Fed's comments on global risks and its decision to keep rates steady, investors pushed the price of gold to its highest price of the year last Thursday before the precious metal retreated slightly. More broadly, gold has faced a few stiff headwinds over the past few years. Since gold does not offer a yield, rising interest rates tend to put downward pressure on the bullion as the opportunity cost of holding it grows, making it less attractive to investors. In addition, gold is priced in US dollars so the stronger dollar has made it more expensive for international investors over the last two years. However, the Fed's decision to keep rates steady during its last two meetings and the weakening US dollar has alleviated some of those pressures and was likely one of the reasons gold is hovering around the year-to-date peak. Chart 2 03.21.16

Source: Morningstar Direct

Fun Story of the Week

Up until 2014, scientists were not able to, with any certainty, explain how rocks appeared to move on their own accord in Death Valley. Known as the Death Valley Sailing Stones, scientists have been scratching their heads since 1948 in an attempt to explain how stones weighing as much as 600 pounds appear to slide across the Racetrack Playa in Death Valley National Park. As the image below illustrates, many of these stones move in parallel lines and even make abrupt changes in direction. Before 2014, the working theory was that hurricane force winds would whip up in the playa, or dry lake bed, and push the stones along the soft sediment. It took Dr. Brian Jackson and his team of researchers from Boise State University setting up stationary cameras and outfitting stones with GPS monitors to finally figure out exactly what was happening. What they discovered is that it takes a rare combination of events to get the stones to move. The playa must first fill with water that is deep enough to form floating ice when it gets cold enough but also remain shallow enough so the stones are still exposed. Thin sheets of "windowpane" ice are formed, and, if strong enough, wind will push the ice sheets which, in turn, push the rocks. As mentioned above, before Dr. Jackson and his team made their discovery, people believed strong winds were moving the rocks. In fact, winds of only 7 to 10 miles per hour and ice less than 3-5 millimeters thick were able to move the rocks. The stones move less than one mile per hour, making the phenomenon extremely difficult to witness with the human eye unless one is using a fixed vantage point.

Chart 3 03.21.16

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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. * NASDAQ COMPOSITE - 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. * 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. * 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. * NIKKEI 225 AVERAGE INDEX - The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated. * 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. * RUSSELL 3000 ENERGY INDEX - The Russell 3000 Energy Index is an unmanaged index comprised of securities that are categorized as energy companies within the energy sector. It is a market cap weighted index. * RUSSELL 3000 UTILITIES INDEX - The Russell 3000 Utilities Index is an unmanaged index comprised of securities that are categorized as utility companies within the utilities sector. It is a market cap weighted index.

Wall Street Journal, March 2016,

Wall Street Journal, March 2016,

CNBC, March 2016,

Wall Street Journal, March 2016,

CNBC, March 2016,

CNBC, March 2016,

Sci-News, March 2016,