The first quarter of 2016 was largely characterized by a volatile equity market driven by macroeconomic factors. The S&P 500 declined by more than 10% during the quarter before recovering to gain more than 1%. Concerns of a slowdown in China, global central bank moves into negative interest rates, and fears of a potential U.S. recession weighed on the equity markets. The bond market broadly rallied on the economic uncertainty. Global monetary policy continued to diverge during the quarter with the Bank of Japan and European Central Bank expanding their already accommodative policy while the Federal Reserve continued to forecast raising interest rates during 2016, albeit more slowly than originally forecast.

The Federal Reserve talked-down expectations for the number of rate hikes during 2016 which helped to push bond prices higher. Corporate bonds rose 4.0%, high yield bonds rose 3.4%, and a higher consumer price index pushed inflation protected bond prices higher 4.5%. The Barclays Aggregate Bond Index rose 3.0% for the quarter.

After a very volatile first half, the U.S. equity market finished the quarter mixed. Value strategies outpaced growth due to defensive sectors, specifically telecommunications and utilities dramatically outperforming. The telecom and utility sectors finished the quarter up 16.6% and 15.6%, respectively. The financial sector finished the quarter down 5.1% due to concerns of a U.S. slowdown, a flattening yield curve, debt exposure to energy companies, and the possibility of negative interest rates.

The global equity market returns were mixed for the first quarter with emerging markets as the best performing region. Gains in emerging markets equity were fueled by a rebound in commodity prices, global monetary policy stimulus measures, and a weakening U.S. dollar. The Japanese equity market underperformed due to continued slow economic growth, a strengthening yen, and a challenged banking industry due to the Bank of Japan adopting a negative interest rate policy.

The U.S. economy continued to add jobs during the first quarter at more than 200,000 a month on average. However, the unemployment rate moved slightly higher during the quarter to 5.0% due to an increase in the labor force participation rate. The Federal Reserve guided-down expectations of the number of rate hikes during 2016. The Fed continued to emphasize data dependence and a concern with the global economy’s impact on the U.S.