Whoa!!  The first quarter of 2016 is one for the history books.  It was the worst start ever for a January and then the biggest recovery in a month’s period of time in March.  All of the juking and jiving brought us back to where we started the year.  The beginning of the year pullback was based on concerns about the energy sector and fear that the Chinese economy was headed for a hard landing.  There is still a great deal of concern surrounding the Chinese economy but the price of a barrel of oil has been dragged above the $40 dollar mark.  The rising oil price gave hope to the energy related stocks and bolstered their share prices.  But there’s a great argument that the quick run up in the stock market was driven by a “short squeeze.”

Investors who were betting the stock market would continue to lose value shorted the market by selling shares they did not have.  They then waited for the price of that stock to go down so they could buy shares for less than the shares they had sold.  The investor then delivers the newly purchased shares to complete the original transaction.  That actually works unless the market suddenly turns and shares prices begin going up.  The short seller must then rush to buy shares to cover the short position.  The short sellers actually force share prices higher and higher as they cover their original transaction.

I realize I just wandered into the weeds.  Sorry.  But if we look for an economic reason for the rebounding market we would be even deeper into the tall grass.

Fed chairman Janet Yellen did give the market a boost by stating that the economy was not in good enough shape to withstand a rate increase.  That’s a real vote of confidence.  She also warned of the dangers the U.S. faces from weakening economies around the globe.  So the stock market went up.  Why?  Because, that means nearly free money will continue to flow.  And investors who would normally be placing money in safe places such as CDs and insurance products are forced to invest in a risker stock market for a return.

The markets have now had 5 quarters of decreasing earnings and 4 quarters of decreasing revenue.  That trend is expected to continue into the next quarter.  First quarter GDP numbers will be public before you read this but the results are expected to be below the dismal GDP number from the 4th quarter of last year.  The GDP forecast for the year is under 2%.  It’s hard to see the Fed raising rates.

The global economy is faring no better.  Europe continues a very aggressive quantitative program.  The chairman of the ECB (European Central Bank) is publicly discussing the expansion of the negative rate experiment.  The Japanese are also discussing even deeper negative rates to spur their economy.  The negative rates have not worked exactly as expected.  Instead of spurring spending the negative rates have caused a hoarding of cash because the negative rates have caused the currency to appreciate.  That is just the opposite of the inflation the ECB and BOJ (Bank of Japan) had hoped to create.

We continue to hold a 50% – 60% cash position in our portfolios with the expectation that a buying opportunity is developing.  In the meantime, we have begun investigating alternative investments as a place holder for the cash while we await the buying opportunity.