Richard Bernstein

Markets Summary – Q1 2016

Global equities finished a turbulent first quarter of 2016 with mixed returns after bouncing back from sharp losses early in the period.

In the U.S., stocks slid in January 2016, as worries about falling oil prices, declining interest rates and weakening global growth raised fears of a possible recession. Investor concern focused particularly on China’s slowing economy and its potential impact on economies worldwide. The adoption of negative interest rates in Japan added to the specter of an impending global recession.

In mid‑February, however, U.S. stocks began a strong rebound that overcame the earlier setbacks. Coinciding with the move was a turnaround in crude oil prices, which rose during the second half of the three‑month period. The equity market rally got a further boost in March from the U.S. Federal Reserve (Fed), when it held interest rates steady and pared back plans for future rate hikes.

The U.S. labor market remained a bright spot throughout the period. Strong job creation data for February helped power the stock market rally into March. After stalling in late March, the rally resumed near quarter‑end following Fed President Janet Yellen’s comments reiterating her support for slower interest‑rate hikes.

For the full three‑month period, the Dow Jones Industrial Average1 delivered a total return of 2.20%, while the broader S&P 500 Index, rose 1.35%. The technology‑laden NASDAQ Composite Index fell ‑2.75%.

Overseas equity markets followed a similarly turbulent pattern during the quarter amid concerns about sluggish growth and China’s economic weakness. The MSCI World Index, a proxy for global equities, lost ‑0.35%, while the MSCI EAFE Index of developed‑market international stocks declined ‑3.01%. Emerging markets were notable outperformers for the period, with the MSCI Emerging Markets Index advancing 5.71%.

*Source: Richard Bernstein Advisors, as at March 31 2016, performance values represented in $USD

Investment Outlook and Positioning 

With the start of a new year, the Fund continued its strong performance in the face of a declining market environment. However, the abruptness of the market’s recovery stymied the Fund.

The U.S. equity market has continued to extend its bull market, while we expect the profit cycle to gradually recover, benefiting cyclical stocks. We don’t see similar benefits accruing to Japan and emerging markets, as we are concerned about their corporate profits. Rising CPI, imminent Fed rate hikes and a flattening yield curve are characteristic of a late‑cycle environment.

As our indicators have changed, we have updated our views and the Fund is now positioned differently, potentially benefiting from the evolving landscape.

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