The first three months of 2015 were very eventful in the stock and bond markets. For stocks, January and March both saw declines while February saw large gains. Stocks ended the quarter marginally higher. The bond market experienced very large swings as interest rates climbed dramatically in early March and then dropped as the month went on. For the quarter, bonds also ended slightly higher, despite the volatility.
On the economic front, we continued to see mixed economic data. Most economists have lowered their forecasts of economic growth as the data suggests the U.S. economy is beginning to slow, at least temporarily. The one area of the economy that has been stronger than most forecasts has been jobs growth and the overall employment picture. The jobs numbers released in late February were strong enough to cause the bond market to drop as interest rates spiked on the belief that the Federal Reserve would begin to raise interest rates sooner than expected. Interest rates dropped throughout the month of March as additional economic data was weaker than expected, leading many to push back the date of the expected rate increases.
We just passed, on March 9th, the six year anniversary of the bottom of the stock market during the Great Recession. It is worth remembering that our economy was on the brink of a depression during the Fall of 2008 and the Spring of 2009. The economic recovery has been quite remarkable since then. While we can argue that different actions should have been taken along the way, it is hard to argue about a stock market that has nearly tripled from its lows.
Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” This is very true. The market expectations of the public as a whole have always been an important factor that determines the life span of a bull market. Where are we now? We have clearly moved beyond pessimism, and it is hard to argue that people are euphoric on economic prospects. Gauging from consumer confidence numbers and the increasing willingness to spend money, we would argue that we have moved into the optimistic phase of the market cycle and a maturing bull market. The good news is these cycles can last many years before euphoria takes hold of the markets. While there will be the inevitable bumps along the way, we believe the longer term bull market has much room to run.