It was the tale of two halves in the first quarter, with January seeing some of the worst declines we’ve seen in years, and February and March seeing some impressive gains. In the first quarter, the S&P/TSX Composite Index rose 4.5%, but that doesn’t tell the whole story. Between January 4 and January 20 the S&P/TSX Composite Index fell by about 9%, but from February 11 to the end of the quarter, our market rose by 11%.
It’s a similar story with other indexes around the world: The S&P 500, which was down by 4.9% during the quarter, dropped by 10% between January 4 and February 11, but then rose by 4% to the end of March. The MSCI World index, which dropped by 6. 5% during the first three months of the year, declined by 12% through mid-February, but rose by 4% over the back half of the quarter.
What happened? The fluctuations were due, in large part, to how oil prices fared during the quarter. Like these indexes, West Texas Intermediate crude was up only slightly over the entire quarter – about 4%. However, it dropped by 29% in the first half of the period, and then jumped by 46% during the remainder of the quarter. The climb began on news that U.S. oil production is finally declining.
While stock markets are less volatile than they were at the beginning of the year, it may still be a while until fears over oil prices and slow global GDP growth fully subside.
Equity markets were also helped by the Federal Reserve’s plan to only increase its overnight rate now just twice this year, instead of four times as was originally signalled. China’s economic issues have also seemingly stabilized for now. In general, investors are feeling calmer about the global economic picture today than they were at the beginning of 2016 and that’s helped buoy most major markets.
While stock markets are less volatile than they were at the beginning of the year, it may still be a while until fears over oil prices and slow global GDP growth fully subside. Yes, the oil picture is starting to improve, but there’s still plenty of supply in the market and it will take more production declines to balance things out. Fortunately, markets started the second quarter off moving in the right direction.