S&P 500 Stages February Rebound – the month of February looked much better for stocks – not quite a “v-shaped” recovery from January but still a good showing. The S&P 500 rose nearly 2% on the month meaning it’s still down for the year but not meaningfully (~2.5%). Hysteria to start the year has given way to better recognition of fundamental strengths that, until recently, have been largely ignored.

The U.S. economy (as we’ve been saying) is in fine shape – January’s manufacturing data was solid, durable goods and auto sales posted better than expected numbers and inflation showed signs of life. The market seems to think that the Fed is more likely to delay its next rate hike, which may very well be true. But, Fed actions will only affect the market in the short-term, assuming we’re just dealing with quarter point rate hikes. The previously mentioned fundamentals are driving the trend line.

Can World Leaders Stoke the Global Economy? – World leaders gathered in Beijing last week to further efforts to “revive” the global economy. Leaders called for more fiscal measures and structural reforms and most of them resisted the idea of Britain leaving the European Union. A joint communication stated an understanding that monetary policy alone cannot lead to sustained growth. True. The idea of fiscal stimulus and structural reforms is a good one – cleaning up barriers to doing business, ending competitive currency devaluations out of self-interest and responsible government spending can boost GDPs. But, G-20 summits are notorious for being a lot of talk and little action. Two years ago, the G-20 launched a $2 trillion plan to boost the world’s growth rate by 2% by increasing investments and restructuring economies to bolster productivity. However, the group has only been able to implement roughly half of the 1,000 policies outlined amounting to measures pegged to add around 0.7% to growth rates over the next five years. Not insignificant, but could be better.

Inflation Woes Abroad, Rising Prices at Home – inflation readings in Europe further deteriorated in February giving Mario Draghi and European Central Bank policymakers more cause for concern in their meeting next week. Inflation fell to -0.2% from an encouraging but, by no means strong, 0.3% reading in January. As it were, February was the worst reading in a year and comes as Europe approaches their first full year of QE. It goes to show that monetary policy alone can’t stoke demand needed to raise prices, but it also speaks to the drag that energy prices are still having – core inflation (ex food and energy) was still up at +0.7% for the month.

Resilience Down Under – here’s a fun fact: Australia has not had a recession since 1992. That’s over 24 years! Australia is known for its mining businesses and being resource rich, but if it solely relied on that for growth then it’d be in trouble given the commodities slide. But, Australia is more diverse than most believe. Australia was able to rebalance away from mining investment and towards service-oriented sectors in the face of the commodities rout and, on an annual basis, GDP grew 3%.


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