January 22, 2016

Fourth Quarter Highlights

Financial Markets

  • Global equity markets rebounded sharply in October after the third quarter sell-off due to accommodative monetary policies and some better economic and earnings news. The gains faded late in the quarter on further weak data from China, weak exports, and more stress in the energy and commodity sectors due to oversupply.
  • Bond prices moved in a tight range during the quarter as each new economic data point was analyzed for the impact on the Federal Reserves’ (Fed) interest rate decision. Bond prices ended the quarter down slightly after the Fed’s decision and because credit spreads widened on earnings concerns.

Overview of the Economy

  • Data shows U.S. consumer related economic activity improving and largely offsetting slowing in the industrial side of the economy. Industrials are being hurt by lower foreign sales due to the stronger dollar, the slowdown in China, and less spending by the oil sector as drilling stalls due to continued low oil prices.
  • Europe is showing some signs of improvement but growth remains muted considering the very low interest rates and the stimulus policies in place. China continues to slow, particularly in industrial activity, exports, and real estate markets.

Notable Events

  • The Fed raised the fed funds rate target by 0.25% in December and ended seven years of near zero interest rate policy. In contrast, the European Central Bank extended its quantitative easing plan into 2017 and cut rates.
  • OPEC decided to keep production at current levels which essentially removed the ceiling on production. Oil prices dropped to multi-year lows in response.
  • In a change in fiscal policy, Congress passed a spending package that lifts spending above sequester caps.

For an in-depth analysis of the quarter, please download the PDF.