After a difficult start of the year for most investments, many categories of assets – including U.S., international and emerging market stocks, as well as investment grade and high yield bonds, are solidly in the black.
During January and February, investors were very concerned about possible downturns in China and the U.S. economy, with particular concerns about bank losses tied to energy loans.
Oil prices rose steadily in February, from the mid $20s to above $40 today. While few energy companies are highly profitable at $40 oil, many more would be pressed to pay back loans at $20 oil. In February, investors worried that U.S. and European banks would suffer significant losses on their loans to energy companies. This fear abated as oil steadily rose in price.
The Chinese stock market, which fell by more than 5% on three of the first eleven days of January, stabilized in February as the Chinese economy showed signs of new growth. Indeed, the latest polls of manufacturers in China show expansion after a year of contraction. The fear that the government could no longer effectively stimulate the Chinese economy diminished, as recent government measures appeared to be working.
All told, while worldwide economic growth is still modest, investors viewed the stabilization of oil and China as reasons to be optimistic.