Fourth Quarter 2015: The Fed Yields
World stock markets rebounded in the fourth quarter after dipping substantially in August, leaving the S&P 500 little changed from where it began the year. Thanks to a negative December, international indices weren’t able to regain all of the lost ground and stayed in the red to finish out 2015.
International indices continued to be weighed down by sluggish Chinese growth, lackluster emerging markets, a global oil glut, and a strengthening US dollar. Recent ECB bond buying seems to have given European markets a back-stop for growth, but Europe remains several years behind the US in its recovery cycle. In Japan, Shinzo Abe requested a new set of reforms aimed at expanding childcare in order to boost the country’s low birthrate and shrinking population.
Stateside, the fiscal picture is slightly rosier as Congress and outgoing House President John Boehner passed, with little political fuss, a budget deal that extends past next year’s Presidential election. As expected, the Federal Reserve raised interest rates for the first time in nearly a decade, ending a six-year zero-interest-rate policy. No immediate reverberations were felt in the bond markets as the long end of the treasury curve remained largely unchanged. The substantial bond news in the quarter came from the credit markets, as Third Avenue Management suspended redemptions in its distressed debt mutual fund. High-yield bonds, already heavily buffeted by low-oil prices, posted their worst year since 2008.
The US continued its mild, steady economic expansion. Job growth numbers continued to come in above expectations as the unemployment rate ticked down to 5.0%. Wage growth has yet to markedly pick up in response.