As March ends each year, the birds start to chirp a little louder with the onset of spring. Flowers bloom, allergies perk up, the sun gets a little warmer, and the cold days of winter seem to fade from memory. In many places, with the transition to a more pleasant environment comes some improvement in the general mood. Nowhere would the preceding description be more apt than in the capital markets. Yesterday, the March jobs report showed 215 thousand jobs were created during the month, topping the 205k estimate. The unemployment rate did pick up a bit to 5.0%, and as the corporate earnings period begins in earnest a few weeks from now, all eyes will turn towards profit reports to see what the bottom line brings for public companies. Tax time is also upon us, and it is always such a pleasure to write the check to the IRS as I know everyone enjoys this special act. Lots to look forward to, eh?
Anyway, Janet Yellen certainly must be happy, as her preferred policy approach, lower for longer, will probably remain in tact for quite a while. Fed funds futures now seem to price in only one interest rate hike for the rest of 2016. If corporate profits disappoint in the next few weeks as many believe they will, there will be even less pressure on the Fed head to return back to 'normalization.'
Dollar weakness has been the result, helping commodities, emerging markets and anything energy-related, not to mention the stock market. The first quarter was essentially one of two stories for domestic stocks. The first six weeks were abysmal, and the last six were equally wonderful. In sum, it kind of followed the seasonal pattern of a difficult winter transitioning into a comfortable spring (that is the game plan anyway). As you well know, it could have been much worse.
On the earnings and deal front, the biggest news came from the hotel area, where it appears Marriot (NASDAQ:MAR) will indeed wind up acquiring Starwood (NYSE:HOT). Dave & Buster's (NASDAQ:PLAY) reported earnings which topped estimates, proving again how wonderful the food and gaming business can be when done correctly. McCormick (NYSE:MKC) met estimates, which is nothing new as the spice seller has been a consistent performer for decades. Blackberry (TO:BB) missed the target in the latter part of the week and is a fine example of how difficult the technology area is when the market has shifted and a company has to change its strategy and products.
The energy sector was yet again front and center with the fall from grace of Sunedison (NYSE:SUNE). Valued at $10 billion as late as July of last year, it appears the company will file for bankruptcy this weekend. Whenever the SEC and Justice department question cash levels along with accounting issues, you have to know the circumstances are not good. Piling up $7.9 billion dollars of debt without the assets and cash flow to pay for it also did not help the cause. Oil heading dramatically lower certainly did not help either. The familiar pattern of an enterprise running into trouble because of aggressive assumptions versus entrenched competitors, and taking on way too much relative to the underlying business, renders a promising company at the mercy of its creditors. The lesson to learn for investors is to understand the level and maturity of the respective debt obligations of any leveraged entity.
In the political world, both parties are enduring the back half of the nominating process, with the frontrunners facing stiff competition from intra-party rivals. Bernie Sanders continues to pressure Hillary Clinton to spend more money, and crazy Donald continues to hurt his own prospects for the nomination by, well, being the guy he has always been. Republicans are now waking up to the reality of how unprepared he is to be the party nominee. In this light, Mr. Cruz and Mr. Kasich seem like pretty good alternatives as a contested convention looms.
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