David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141

Risk-Off, Risk-On

April 26th, 2016

Following a steep correction over the first six weeks of 2016 (which saw the S&P 500 decline 12% from its recent peak, hitting a fresh 52-week low), equity markets rebounded in late February and March, with domestic market indexes finishing the quarter up nearly from where they had started.  The sell-off in January was precipitated by plunging oil prices (which hit a 13-year low of $26 per barrel in February), as well as recurring fears of a slowdown in China (and potential ripple effects for the global economy).

Recently, oil prices and interest rates have been the biggest drivers of market sentiment.  Oil declined nearly 18% in Q4 of 2015, and heading into January that slide showed no signs of abating, with some analysts predicting prices as low as $15 per barrel.  Sustained prices at that level threaten the viability of a number of U.S. shale oil producers, whose production costs generally range between $30 and $60 per barrel.  Therefore, investors feared not just a wave of bankruptcies and defaults from energy producers, but also the follow-on impact to creditors, banks, and industrial equipment manufacturers.

Meanwhile, against a backdrop of muted global growth and increasingly aggressive monetary stimulus in Europe and Japan, the U.S. Federal Reserve’s stated intent to further raise interest rates (following a 0.25% increase in December) seemed oddly out-of-step.  Considering the U.S. economy’s meager wage growth and below-target inflation (thanks in part to low energy prices), many were skeptical of the need to raise rates.        Read the rest of this entry »

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