Behind a roller coaster first quarter


Stock investors went on a wild ride in the first quarter.

Share prices opened the year by falling off a cliff, tumbling down more than 10% at one point in early February.

 

roller coaster

 

Then, just as suddenly, the major indices came storming back.

 

Source: Bespoke Investment Group

Source: Bespoke Investment Group

 

Fresh Start

As of March 28, the Dow Jones Industrial Average and S&P 500 Index are hovering at the break-even point.

It’s as if the year is starting anew.

 

Oil Rebound

One positive for stocks has been a mini-rally in oil prices since early February.

 

oil

Bloomberg: West Texas Intermediate

 

The extended run of low energy prices is starting to slow the supply of oil supply growth, according to the International Energy Agency (IEA).

True, storage levels of oil are at record highs. But the decline in US oil production should start to push oil prices as high as $40-per-barrel, according to some analysts.

 

Ties That Bind

If so, that could be good news for stocks.

The correlation between US share prices and oil has touched a multi-year peak, rising up to 0.6 (1.0 is perfect correlation), an analysis by Bespoke Investment Group shows.

 

oil and stocks

Source: Bespoke Investment Group

 

Gold Bugs

One other remarkable feature of the first quarter market action has been the rebound in gold prices.

The gold bugs are back as stock market and currency instability have boosted demand for the precious metal, thought by some to be the safest repository of wealth.

Demand has been particularly strong in Southeast Asia where currencies are unstable. Chinese consumers are also pulling money out of stocks and buying gold.

 

 

Bloomberg: SPDR Gold Trust ETF

Bloomberg: SPDR Gold Trust ETF

Takeaway

The best one can say about the first quarter of 2016 is this: It’s over.

Stock market losses have all be erased as oil prices have stabilized.

Given all the challenges facing the global economy, investors would be well advised to keep their seat belts fastened.
Photo Credit: Felix Montino via Flickr Creative Commons


Xavier Brenner

About Xavier Brenner

Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.