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It had been a relatively uneventful quarter for investors until the last week of June, when British voters voted to leave the European Union.  Markets around the world plummeted on the surprise vote.  The Dow dropped 900 points in the first two trading days after the vote; then regained almost the entire amount over the next three trading days.  There is little to do when the markets react like this, and in reality, the Brexit will likely have little impact in the U.S.  It is also worth noting that this was a non-binding referendum, so we do not know what the ultimate outcome of the vote will be.

It may not feel like it, but the U.S. stock market made an historic comeback during the first quarter of 2016.  From its low on February 11th the stock market has rallied more than 11%, wiping out the losses for the year.  This is the biggest quarterly comeback for the market since 1933.  The bond market has continued to be volatile but ended the first quarter with modest gains as interest rates fell during the quarter.

2015 was a frustrating year for investors.  Both stocks and bonds experienced lots of ups and downs, but ended the year with very little to show for it.  Continued economic growth gave us the gains, while questions regarding future growth rates, particularly around the world, gave us the losses.

Economic growth in the U.S. grew roughly 2.1% during the past year.  While positive, GDP growth slowed late in the year. Strong employment gains throughout the year lowered the unemployment rate to 5%.  Also in the U.S., strong consumer spending and continued debt reduction added to our economic growth.  The other big economic news during the year was the FOMC raising the Fed Funds rate for the first time in nine years.

The third quarter of this year was an unpleasant one for investors.  The stock market had its worst quarter’s performance in four years.  The bond market was very volatile during the quarter as speculation regarding the Federal Reserve’s intentions ran wild.  Bonds ended the quarter with small gains.  The Fed’s decision to keep rates unchanged caused renewed fears that worldwide economic growth is slowing.

The heightened volatility the markets experienced during the first quarter continued during the second quarter.  The stock market was very choppy as fears of an interest rate hike by the Fed combined with mixed economic data to leave investors unsure of what the future holds.  Once again, problems in Greece are causing anxiety around the world as the European Union tries to hammer out a compromise to bail them out of their extreme debt.   With a Fed rate hike looking more likely, bonds sold off across the board causing interest rates to move markedly higher.

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.

With this quarterly letter, our 68th, I wanted to alter the format from our previous 67 letters.  All of our letters have included our thoughts on the markets and a review of the current quarter or year and they have come from the company.  With this letter I wanted to write to you personally as the President of Wabash Capital.

2014 was another positive year for stocks as the U.S. economy continued its expansion.  We have now had six straight years of gains following the Great Recession of 2008-2009.  The bond market rallied following a difficult year in 2013 as interest rates dropped to new lows during the year.  The last half of the year was quite volatile as we saw conflicting economic data.  We expect more of the same in the upcoming year.

Both stocks and bonds experienced increased volatility during the third quarter.  Both markets were negative in July, positive in August, and negative again in September, ending very nearly even for the quarter.  Conflicting economic data, much of which points to a U.S. economy running out of steam, was the primary culprit.  Also causing concern among investors were geopolitical threats in the form of ISIS, renewed military action in the Middle East, and questions about the health of Europe’s economy.  It was, needless to say, an eventful three months.

The second quarter ended with solid gains in both stocks and bonds, even as economic data showed mixed results.  Stocks continue to add to their gains of last year, and bonds have rebounded nicely from a difficult 2013.  While not all economic data support market gains, the economy continues to show slow, steady improvement, which the markets like to see.  A recent headline on the market asked the question, “Why is the stock market so boring?”  We will take today’s boring market over the excitement of 2008 anytime.

Stocks are off to a volatile start in the New Year, as a weak January was followed by a strong February.  March saw lots of ups and downs as the events unfolding in Ukraine surpassed economic news in the U.S. in importance.  When it was all said and done, stocks were able to end the first quarter with a small gain.  The bond market also experienced small gains during the quarter as inflation remained a nonfactor.