The Federal Reserve, in response to signs of improving economic data, seeks to nudge U.S. interest rates higher, while the rest of the world continues to ease monetary policy in an effort to stimulate economic growth. This pursuit of asynchronous global monetary policies sets the stage for increased market volatility.

  • For the third straight year, equity markets have opened the New Year in negative territory. U.S. stock indices are down 7-10%, while most emerging markets are down low double digits. For the third straight year, many of the reasons for these early declines are the same
  • Continuing economic weakness in China has led to an almost 17% decline in the Shanghai “A” Share market in the first two weeks of 2016. The Chinese government has made efforts to weaken its currency, which could lead to greater Chinese exports, but at the expense of many emerging market economies that, at least until recently, were suppliers to China.
  • Fears of global economic weakness have also led commodity prices lower. Most notably, crude oil has also fallen by 17% in the New Year, briefly dipping below $30/barrel yesterday. This exacerbates concerns about the health of emerging markets, as many of those economies depend upon commodity exports for a large portion of their growth.
  • As a result, most investors fear that the chances of global recession are greater than they might have been in December when the Federal Reserve chose to raise short term interest rates. Though it is likely too early to cut 2016 earnings forecasts for U.S. corporations, earnings growth was already expected to be anemic. The specter of further interest rate hikes, in tandem with weak corporate earnings, would suggest that further gains in equity prices in the U.S. might be hard to come by.


Manager commentary provided by Great Lakes Advisors, a Wintrust Wealth Management Company. Market commentary represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.