2016 was expected to be an eventful year. It’s a Presidential election year. It’s also an Olympic year. These events are always statistically significant and historically influential; for better or for worse. Something you might not have thought about is that these events almost always land on a “Leap Year”, when February has 29 days. 2016 is a leap year. Julius Caesar is considered the father of Leap Year, and he apparently had one rule; any year evenly divisible by 4 would be a leap year. That didn’t work, so adjustments were made with the creation of the Gregorian calendar. Leap years occur almost every 4 years. It takes 365 1/4 days for the Earth to complete its orbit around the Sun. However, a Solar year comes up 11 minutes short. To adjust for the difference, the leap year is omitted 3 times over the course of a 400 year period. How many of you knew that? 1900 was not a leap year.
The issues that investors are facing in 2016 have very little to do with the fact that we have an extra day. The global economy is experiencing challenges that require attention. China is dealing with slowing growth. Europe and Japan are struggling to grow period. We found out today that the US economy grew faster than initially thought last quarter. Tensions remain ripe in the Middle East, but also on the campaign route. Economics, politics and geopolitics make things very complicated on planet Earth. There’s a lot of friction. But there’s also a lot to like. Finding equilibrium is bumpy business.
Leap year is basically a calendar correction. It is a necessary event to maintain balance. Market corrections provide the same role. The correction which began last August continues to run its course. We hit a double-bottom, in January and February. Both bottoms led to impressive rallies from oversold conditions. The Market is acting much better today than at the beginning of the year. That goes for both stocks and bonds. There is still some built up stress in the financial system, largely created by falling commodity prices. The price of oil has also experienced a double bottom at $26. No surprise, the levels were touched the same day that the DOW and S&P hit their lows. Crude’s move back above $30 has been healthy and relieved some stress. The world still runs on crude, and price matters.
It’s way too early to tell how this year plays out, but the Market clearly expressed concerns early and often. The S&P 500 is back above its 50 day moving average for the first time this year. It’s not an all clear sign that the worst is over, but it is a positive indicator. We anticipated a tough start to the year and think we still see more volatile price action ahead of summer. Our investment thesis for 2016 was tough start, strong finish. We’re sticking with it.
Monday is “leap day”. Tuesday is “Super Tuesday”. We’re not even 1/6 of the way thru 2016, but it has already proven to be eventful and memorable. Let’s all hope it’s remembered for positive developments. There’s quite a ways to go.
We’re all over it. Have nice weekend. We’ll be back, dark and early on Monday.