Over much of the past 20 years, the relationship between global economic policy uncertainty and volatility in the U.S. equity markets has been clear, with the correlation between the two being high.
- U.S. equities continued their rally in February as volatility remained low. Year to date, the broad market has gained 5.7 percent.
- Overseas stocks in both developed and emerging markets also gained ground in February, adding to their positive returns year to date. Emerging markets have returned an impressive 8.7 percent YTD in U.S. dollar terms.
- Fixed income indices had positive returns in February. Risk-correlated assets led the way, with high yield bonds gaining 1.5 percent, while the Bloomberg Barclays Aggregate added 0.7 percent as long-term yields declined modestly.
- The Fed kept interest rates unchanged following its January/February meeting, but since then FOMC members have indicated their intent to move sooner than markets had anticipated, signaling that a March hike was a distinct possibility.
- Economic data suggests the economy may be gaining momentum; consumer confidence is at its highest level in nearly 16 years, while retail sales grew faster than expected in January, and the U.S. labor market remains strong.