Stacks Image 444
April, 2016

After several rocky months for financial markets, March turned out several straight weeks of gains, giving investors hope for the Spring. Let’s talk about what happened.

After months of strength, the U.S. dollar weakened against other currencies. [1] A strong dollar makes domestic goods more expensive to foreign buyers, which has hurt corporate profits. A comparatively weaker dollar will help make U.S. products more competitive on the global market, which we hope will be reflected in international demand for our goods.

Last month was also important for central bank policies. The European Central Bank, Bank of Japan, and Federal Reserve all held meetings to determine monetary policy. In recent years there has been a divide between the Fed, which is moving away from ultra-low rates, and European and Japanese central banks, which are fighting slow economies with negative rates and quantitative easing. However, discussions at the March Fed meeting show that U.S. economists are also becoming more concerned about growth. [2,3]

During the March meeting, the Fed voted to hold rates steady and indicated that officials are planning for a slower pace of rate hikes this year. Remarks after the meeting show that Fed economists are divided. Some officials want to start raising rates soon while others favor a wait-and-see approach. However, Fed Chair Janet Yellen has been clear about her intention to remain cautious in the face of global risks. [4]

We also got some good economic news last month. The final estimate of fourth-quarter economic growth showed that Gross Domestic Product grew at an annual rate of 1.4 percent instead of 1.0 percent. Much of the improvement came from stronger-than-expected consumer spending, which is great news for the economy. The labor market also continued to add jobs in March, which supports further spending. [5,6]

On the other hand, the increased spending at the end of 2015 may have come at the expense of growth in the first quarter of 2016. Consumer spending data from January was revised lower, causing Q1 GDP forecasts to plummet. [7]

Looking ahead, we’ll be awaiting reports from the first quarter that ended in March to see whether the numbers support or weaken concerns about growth this year.

We’re not the only ones who will be closely monitoring the data; we know that the Fed will be watching ahead of its April meeting to see whether the economy can support additional rate increases. Will they raise interest rates in April? It’s hard to say, but it’s not likely. Currently, most economists predict a June 2016 interest rate hike, but there’s always room for a surprise if the data looks good. [8]

While we believe the information in this report is reliable, we cannot guarantee its accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security.

[1] http://www.fxempire.com/news/forex-news/dollar-weakens-on-mixed-u-s-economic-data-thin-trading-conditions-330645
[2] http://www.forbes.com/sites/bryanrich/2016/03/09/ecb-and-boj-action-may-greenlight-a-second-fed-rate-hike/#441f39ee3248
[3] http://www.cnbc.com/2016/03/16/fed-leaves-rates-unchanged.html
[4] http://realmoney.thestreet.com/articles/03/30/2016/yellens-global-message-sure-resonate-u.s.-multinationals
[5] http://www.bloomberg.com/news/articles/2016-03-25/u-s-economy-grew-1-4-in-fourth-quarter-supported-by-consumers
[6] http://www.econotimes.com/ADP-points-to-resilient-US-labor-market-186534
[7] https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/GDPTrackingModelDataAndForecasts.xlsx?la=en http://blogs.barrons.com/incomeinvesting/2016/03/28/atlanta-feds-gdp-now-plunges-predicts-just-0-6-q1-growth/
[8] http://projects.wsj.com/econforecast/#qa=309160001