Around mid-February, markets began to turn around with no clear catalyst, as is often the case. Oil prices spiked higher, stock markets rallied, and the dollar declined (serving as a tailwind for foreign stock returns). In a reversal of the recent trend, international bonds and emerging market stocks were among the highest returning asset classes. Core bonds, which had rallied strongly in the first half of the quarter, fell and the 10-year Treasury yield moved higher.
This sort of market turmoil vividly illustrates why we construct diversified investment portfolios for our clients. It also points out the unpredictability of short-term market movements. Our approach is to build portfolios that are resilient through a variety of market scenarios by balancing long-term risk and return potential.
The quarter ended positive for bonds and mixed for stocks. U.S. stocks were mostly up, particularly value stocks, many of which lagged in 2015. Developed international stocks rebounded strongly from quarter lows but didn’t quite make up all the losses, down 2% for the quarter.
We noted in our last quarterly letter that there could be a reversal of the dollar strengthening trend of the past several years. After peaking in late January, the dollar index ended down about 4% for the quarter. The Fed lowered its projection of the number of interest rate hikes for 2016 from four to two, as was reflected in Treasury futures markets. With expectations for higher US interest rates being reset lower, we could see further dollar declines boosting returns for multinational US companies doing business abroad and international stocks and bonds.
As you know from the letters we have sent you in recent weeks, Carl Camp will be leaving his day-to-day responsibilities at Eclectic Associates on June 1st. We have done a great deal of planning for this and while it is a major transition, we believe we are well-prepared and are excited to see those plans come to fruition. If you have any questions or concerns about this specifically, please do not hesitate to call about it.
One of the positions Carl held at Eclectic was that of Chief Compliance Officer. This position is required by the Securities and Exchange Commission and is responsible to ensure Eclectic is complying with federal laws and regulations. We are happy to announce that Patricia Buchholtz is now Eclectic’s Chief Compliance Officer. She has been assisting Carl in this area for many years and will now have the responsibility to oversee it. This information is also enclosed in Eclectic’s Form ADV Part 2A brochure. If you wish to receive a complete copy of our Form ADV Part 2A brochure, please send a written request to our office.
Thank you for entrusting us with your financial lives. We take that responsibility very seriously and we consider it a privilege to serve you. If you have any questions, please feel free to give us a call.