While capital markets experienced some volatility during the first quarter of 2017, it
was significantly tamer than the tumultuous first quarter of the same time last year. The stabilization of oil prices and the consistent signs of economic stability, globally, set the backdrop for positive gains in the first quarter.
The political climate in the US, as well as the globally, seems to be the biggest driver of market expectations. Central banks around the globe have begun to take a back seat to policy makers and increasingly nationalistic agendas.
For most of the past decade, a Federal Reserve (the Fed) rate hike would have sent shivers throughout the market. However, the second raise of the past two quarters was met with largely positive reviews. The Fed can still create headlines with any discussion of unwinding their $4.5 trillion dollar balance sheet, and the fixed income markets are keenly sensitive to how the Fed will handle the roughly $1.1 trillion in debt maturing between this year and 2019.
Other central banks around the globe are not yet in the tightening mode, but they are slowing or stopping the rate of easing.
US interest rates declined throughout the quarter after a sharp post-election run up. The new gridlock in Washington (is gridlock in Washington ever new?) has started to convince markets that President Trump’s agenda will probably not be fulfilled in a short time horizon, if at all.
Fixed income markets muddled through the quarter to news’ headlines as reflected by the 0.82% gain by the BBgBarc US Agg Bond index, and the 1.76% return from the BBgBarc Global Aggregate.
Equity markets seemed to shrug off any geopolitical tensions, or central bank news, and marched higher throughout the quarter, reflected by the S&P 500 up 6.07% in the US, the MSCI EAFE up 7.25% for Europe, Asia and the Far East, and MSCI ACWI up 6.91% for the globe including emerging markets.
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Index returns as of 03/31/17, Morningstar.com