The final quarter of 2016 was bountiful for equity investors, but less so for bond holders. Most equity indices broke or flirted with record highs in the December period. The interest rate jump after the November election took its toll on bonds, as the Barclays Bond Aggregate Index ETF fell almost 4% in the period. Oil continued its slow and steady recovery from the lows of last February, though gold fell in the period.
The election of Donald J. Trump will be remembered as one of the most unique and historic elections in the history of our republic. We will let the political pundits and commentators focus on the stylistic aspects of the President Elect, but with regard to the equity and bond markets, Mr. Trump’s election has been and will continue to be good for stocks and very good for small cap stocks.
The September quarter proved to be relatively benign for investors. Most market indices advanced in the period, as shown in the table below. The NASDAQ Composite performed very well (+9.2%) and the major indices advanced modestly (+2.1% for the Dow Industrials and +3.3% for the S&P 500®). After nearly two years of notable volatility, at last oil prices seem to have settled into a price channel between $45 and $50 per barrel.
Following the extraordinary and historic decision by the Queen’s subjects to leave the European Union, Chief Investment Officer Dennison "Dan" T. Veru shared some of his thoughts on what would likely happen to the financial markets over the next several days.
Four major issues fed investor anxiety during the quarter: (1) the prospect of the first increase in U.S. interest rates in nearly a decade; (2) the strong dollar and the fear that U.S. corporate earnings will be crimped by the dollar’s strength; (3) concern over China’s economic slowdown; and (4) apprehension about the ability of debt-laden emerging economies to service their dollar-denominated debt in the face of slowing growth, falling commodity prices, and a strengthening dollar. So why did the Fed back down and not raise rates at its recent meeting on September 18? Where will the American capital markets go from here? Will the Fed raise interest rates before year-end? Read Palisade's quarterly investor commentary for our thoughts on these issues.
Managing Director and Senior Portfolio Manager Bill Lee believes that as we confront a climate of rising interest rates and increased market volatility, the case for convertible securities is compelling. He makes his case in a newly published white paper.