Q1 2015 Letter From Jeff Gundlach’s Doubleline
Central Bank policy remained a focus during the first quarter of 2015 as market participants continued to look for any signs of a rate hike in the U.S. As a result, particular attention was given to the Federal Open Market Committee (FOMC) minutes released during March and as many expected, the word “patient” was omitted when providing forward guidance. The move is expected to provide the Fed with additional flexibility. It is worth noting that several FOMC members emphasized caution citing weaker growth and lower inflation forecasts which were recently downgraded beyond 2015.
Inflation remained another focal point during the first quarter after several consecutive months of weak commodity prices. Inflation as measured by the Consumer Price Index (CPI) and Producer Price Index (PPI) for Final Demand were mixed during March as oil prices stabilized. The Personal Consumption Expenditures (PCE) Deflator, a measure used by the Fed to monitor a wide range of spending, was up just 0.3% year-over-year (YoY). Excluding food and energy, the Core PCE was up 1.4% YoY, well short of the Fed’s 2% inflation mandate.
Growth expectations have also been on close watch as the Bureau of Economic Analysis (BEA) released their third estimate of gross domestic product (GDP) for the fourth quarter of 2014. According to the BEA, GDP expanded by 2.2% as exports and PCE drove growth. For the full calendar year 2014, GDP grew 2.4%. According to the Conference Board, growth is expected to increase at an annualized rate of 2.8% during 2015.
One of the most disappointing figures for the quarter came in the March nonfarm payrolls figure. According to the Employment Situation Summary, total nonfarm payrolls increased by 126,000 during March, marking the lowest gain since December 2013. The figure also It was against this challenging backdrop that risk assets were mixed through the first quarter. U.S. equities as measured by the S&P 500 Index fell 1.58% during the month but are still positive for the year. The Barclays U.S. Aggregate Bond Index was up 0.46% during March and is up 1.6% year-to-date (YTD).
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