By: Jeff Branstad, CFA, Investment Product Management February 29, 2016
February brought plenty of motion but little action, as the S&P 500 ended the rocky month at a level very close to where it began.
After opening 2016 with a 5.1% stock market loss in January, the volatility continued unabated throughout February. The month began with a steep two-week decline, doubling up on the January drop.
By mid-month the S&P 500 had fallen below 1840—marking a decline of more than 10 percent for the year. But after hitting bottom on Feb. 15, the market made a recovery in the second half of the month that resembled a mirror image of the first half decline. By month’s end, the market had reclaimed nearly all the lost ground, with the S&P 500 finishing at 1932—just 7 points shy of the 1939 level where the month began.
The market for 10-year Treasuries continued to thrive in February as investors switched to bonds to flee the uncertainty of the stock market. But that trend could be short-lived as yields have become increasingly unattractive. By the end of February, the yield on Treasuries purchased on the secondary market had fallen to about 1.75%—the lowest yield range since 2013.
By the Numbers
Market activity in February, as reflected in the most common market indexes we follow.
What’s Driving the Markets?
The market’s volatility seems to reflect a difference of opinion in the financial world regarding the direction of the U.S. and global economy. The bears prevailed through the first half of February while the bulls stole the stage in the second half.
Generally speaking, there were no dramatic defining moments in February to propel the market in either direction:
- China continued to struggle with a slowing economy and weakening currency, but that’s a story that has been ongoing for many months.
- Oil prices seemed to stabilize after Russia, Saudi Arabia, Qatar, and Venezuela agreed to freeze production at early-January levels, but that agreement remains tentative, awaiting a buy-in from other key producers.
- The Federal Reserve showed no signs of making a rate change in the near future.
- Revised GDP numbers from the 2015 4th quarter, released in late February, showed the economy growing at a faster rate than previously reported. Consumer spending, on the other hand, was weaker than the preliminary numbers had indicated.
With key measures offering a conflicting picture of the direction of the economy, the tug-of-war between bulls and bears may continue, perpetuating the volatility that has characterized the stock and bond markets thus far in 2016.
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