- Equity markets rallied further in February, adding to their strong year-to-date returns. International markets outperformed domestic equities, as Eurozone fears subsided over the course of the month.
- Bond returns were mixed in February. Taxable bonds fell marginally, as Treasury rates rose across the steepening yield curve.
- Economic growth was stronger than initially thought for the fourth quarter, although growth for the year was still a paltry 1.7%.
- The employment situation has continued to improve. Job creation remained strong, although the unemployment rate was unchanged in February at 8.3%.
Oil, that is. Black gold. Texas tea…
It’s no secret that oil prices have been on the rise lately, driven up by a few of the usual culprits. Geopolitical fears focused on the Middle East have been a primary catalyst for this recent run-up, although increasing global demand and speculator trading have arguably also played a role in the gradual rise. Specifically, West Texas Intermediate (WTI) crude has risen by more than 40% from its recent trough in October 2011. Since oil accounts for more than three quarters of the cost of gasoline, it’s not unexpected that gas prices across the nation have risen and are approaching or surpassing the psychologically significant $4.00/gallon mark. Notably, 10 of the last 11 post-WWII recessions have been preceded by a spike in the price of oil. While we aren’t suggesting that current oil price levels alone could squelch the expansion, continued price increases over a sustained period would enhance the risk of such an outcome. Even so, the specific causal nature of the relationship between rising oil prices and recessions remains subject to academic debate. Is rising prices the issue or is there more to the story?