After dropping steeply until mid-month, the stock markets reversed and ended near where they began. February returns cluster the flat line with S&P down a little and DJIA up a little. The NASDAQ closed down over -1%. Markets are down -5 to -9% YTD and -8 to -9% over the past year. Financial stocks (banks, insurance companies) have suffered most in this downturn with low interest rates here and negative interest rates appearing abroad.
A Negative Interest Rate Policy (NIRP) applied in several countries shows some interesting side effects: their currency has strengthened; the financial sector is hardest hit; it has caused a flight to safety, i.e., gold and cash. Banks in the U.S. are stronger than in Europe because banks here had to increase capitalization post 2008. Growth rate of lending by U.S. banks’ is 9%. Will the U.S. follow Europe and Japan into NIRP? If the CPI continues to trend up we are on firmer ground. We will be following this and advising you accordingly. For now, portfolios are well positioned.
This mild winter continues to morph into early spring. Snowdrops bloom in the emerging lawn and daffodil and crocus buds swell in their beds. These hardy leaders will take some cold and even snow that may yet come. Winter may not be over but spring already eases in. Welcome intrepid ones.