In our view, the April 2016 employment report underscores a key disconnect between the market and Federal Reserve (Fed). What pace of labor market growth is necessary to tighten the labor market, push up wages, and ultimately spark inflation?

This week we look at what the upcoming presidential election may mean for markets in 2016. Following last week’s somewhat surprising news that both Ted Cruz and John Kasich had withdrawn from the race, Donald Trump will be the Republican presidential nominee. Given that Trump has no formal policy record or political experience of any kind, this election cycle is, needless to say, unusual. Markets do not like uncertainty, and Trump undoubtedly brings that to the table.

The 75% run-up in oil prices from the multiyear lows hit in mid-February 2016 has raised concerns that the U.S consumer may run for the hills. However, a look at what consumers actually did over the past two years as oil prices fell more than 70% (from nearly $110 per barrel in mid-2014 to just above $25 in early 2016) can help us better understand what consumers may do now that energy prices could be on the way back up.

“Sell in May and go away” is probably the most widely cited cliché in stock market history. May is upon us, which every year sparks a barrage of Wall Street commentaries, media stories, and investor questions about the popular stock market adage. This week we tackle this widely cited seasonal pattern, but with a couple of twists thrown in to add some new perspective.

As the third of eight Federal Open Market Committee (FOMC) meetings of 2016 approaches later this week, the market and the Federal Reserve (Fed) again remain deeply divided over the timing and pace of Fed rate hikes.

Value stocks have staged a comeback versus growth after a long losing streak. Based on the Russell 1000 style indexes, growth has outpaced value for the better part of the last decade. Other than the period between April 2012 and July 2013, it’s been all growth all the time since 2006.

Low yields coupled with fair valuations send a mixed message from the municipal bond market. The shift from a challenging seasonal period to a more favorable one provides another. The passage of April 15, or April 18 as is the case this year, marks not only the tax deadline but also the end of a challenging seasonal period for municipal bonds. Tax-related selling can often pressure municipal prices as soon as the start of March, but lackluster performance in both stock and bond markets in 2015 limited capital gains that might result in municipal bond sales.

Emerging markets (EM) tantalize investors with the prospects of higher returns; yet the key to these returns may be the value of the U.S. dollar. Currency movements impact all aspects of international investing, starting with the basic impact of adjusting gains for the change in currency value when determining total returns. However, changes in currency also impact areas like corporate earnings, the ability to repay debts, and the overall economic health of the country. These impacts are greater for EM investments, where currencies are more volatile and countries are more economically dependent on trade.

Stocks have had quite a nice run. Since the February 11, 2016 lows the S&P 500 has gained 14%. The rally has been driven by many factors?—?chief among them, better U.S. economic data, higher oil prices, the Federal Reserve’s (Fed) slower rate hike timetable, increased confidence in China, and more stimulus from overseas central banks. These factors have enabled stocks to trade more on fundamentals than fear, and have pushed the S&P 500 to just 2.4% below its all-time high. Here we assess the likelihood that the rally continues from this point forward, and, if so, how much further it might have to go.

With the deadline approaching, taxes are front and center in the minds of investors. No one likes paying taxes, but they are of utmost importance to the financial well-being of state and local governments. Higher tax revenue has been a key driver of improving (in most cases) state and local government credit quality metrics by firming the financial standing of municipal government debt issuers. However, growth in state and local government tax revenue may be poised to slow, lessening the positive impact behind municipal credit quality.

As U.S. corporations begin to report their results for the recently completed first quarter of 2016, global growth will likely take center stage among investors. While comments from corporate managements on business conditions in Europe, Japan, China, and other emerging markets will be closely watched, those comments may be overshadowed. This week, the International Monetary Fund (IMF) will publish the spring edition of its World Economic Outlook publication.

After disappointing investors last year, emerging market earnings forecasts may finally be consistent with what can be delivered. Emerging markets (EM) have underperformed U.S. markets since the summer of 2011. The reasons are numerous, including concerns about the Chinese economy (the largest and most important among EM), the strength of the U.S. dollar, and the decline in commodity prices, just to name a few.

The first quarter of 2016 is in the record books and for most, including bond investors, it was a tale of two halves. During the first six weeks of the year, domestic economic concerns, worries over the state of China’s economy, and a near 30% decline in the price of oil sparked a strong Treasury rally that drove high-quality bond yields lower—not just in the U.S., but globally as well. Then the last six weeks of the quarter saw a shift for lower-rated bonds, thanks to improving economic data and market-friendly central bank actions. Through all the ups and downs, it was a strong quarter for bond performance; however, we don’t expect this strength to repeat over the remainder of the year.

First quarter earnings results will not be very exciting, but the earnings trajectory may be at a trough. We would love to say that this earnings season, which begins on April 11, 2016 (unofficially), will bring better results than recent quarters, but that appears very unlikely.

The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor will release its always widely anticipated Employment Situation report for March 2016 on Friday, April 1, 2016.

The NCAA Men’s College Basketball Final Four is set. North Carolina, Oklahoma, Syracuse, and Villanova are headed to Houston, TX to determine this year’s hoops national champion. In that spirit, we share our own Final Four for the stock market this year: China, earnings, the Federal Reserve (Fed), and oil. Stock market investors may not storm the court at the end of this year, but we do continue to expect mid-single-digit total returns for the S&P 500 in 2016 based on our assessment of our “Final Four.”

As 2016 began and 2015 ended, global financial markets faced plenty of uncertainty in the wake of the first rate hike by the Federal Reserve (Fed) in nearly nine years. Although the rate hike was well anticipated and priced in by many market participants, the Fed’s move forced markets to focus on imbalances in the global economy and financial markets that had been simmering for years. The fears about how (and when, if ever) those imbalances would be resolved led to an extreme bout of financial market volatility over the first few months of 2016.

High-quality bonds broadly have enjoyed a good start to 2016, but Treasury Inflation-Protected Securities (TIPS) have particularly benefited recently and, last week, received an added tailwind from the Federal Reserve (Fed).

Forecasts for European corporate earnings have become increasingly pessimistic. Analysts have reduced calendar year 2016 expectations to just under 3% earnings per share (EPS) growth, currently from nearly 20% as of the end of September 2015. Even though European stock prices have declined, the collapse in growth expectations suggests that these markets are still fairly valued; few, if any, bargains have been created. Recent aggressive monetary policy by the European Central Bank (ECB) may have boosted stock prices, but the implications for corporate earnings are much less certain.

The Fed holds its second of eight FOMC meetings of 2016 this Tuesday and Wednesday, March 15–16, 2016. The FOMC’s “dot plots” are likely to be at the center of attention. Fed Chair Yellen’s first post-FOMC meeting press conference of 2016 provides an opportunity for the Fed to add color to its view of the economy, inflation, and financial market volatility.

The bull market turns seven. Last Wednesday, on March 9, 2016, the bull market officially celebrated its seventh birthday. During that seven-year period, the S&P 500 nearly tripled, gaining 194% in price and producing a total return of 241%. Although our expectations for the stock market in 2016 are for only modest S&P 500 gains, we do not see the warning signs that have signaled the end of past bull markets and would not be surprised at all if the current bull market celebrates its eighth birthday one year from now.

The latest Beige Book suggests that the U.S. economy is still growing near its long-term trend, but that the drag from a stronger dollar and weaker energy prices, along with the slowdown in emerging market (EM) economies—most notably China,?are still having a major impact on the manufacturing sector. In addition, our analysis of the Beige Book confirms that there has been some spillover of weakness from the energy and manufacturing sectors to other parts of the economy in recent months.

International factors can help explain the relative resilience of longer-term bonds from mid-February to the start of March. Since Treasury yields bottomed on February 11, 2016, the 2-year Treasury yield has increased by 0.15% compared with a more muted 0.09% rise in the 10-year Treasury yield. The relative resilience of longer-term .

As we enter March, market participants are already looking ahead to the Federal Reserve’s (Fed) next Federal Open Market Committee (FOMC) meeting. While the meeting isn’t until March 15–16, 2016, markets are already trying to decipher how the widening disconnect between what the Fed plans to do with the fed funds rate and what the market thinks the Fed will do will be resolved.

Since the middle of 2014—as markets prepared for the start of Federal Reserve (Fed) interest rate hikes and more easing from the European Central Bank (ECB) and the Bank of Japan (BOJ)—the U.S. dollar has been on a near historic run higher versus the currencies of major U.S. trading partners. I

The 10-year Treasury yield has fallen by 0.6% over the past six weeks, a very rare occurrence. Going back 20 years, such a noteworthy yield decline over such a short period of time has occurred only 2% of the time since February 1996. Figure 1 illustrates not only the rarity of such large yield declines, but also the significant events that pushed high-quality bond prices higher and yields lower. Recessions or global crises are the most frequent catalyst, although the current episode has no single driver. China growth fears, oil prices, sluggish U.S. economic growth, and most recently, bank cr

It has been a rough start to 2016 for the stock market. In fact, it’s been one of the worst starts to a year in the history of the S&P 500. This week we look at how stocks have done historically after other similarly bad starts, compare current fundamental and technical conditions to prior bear market lows, and discuss some potential catalysts that could help turn stocks around. While recession odds have risen (we place the odds at about 30%), we do not expect the S&P 500, down 12.5% from 2015 highs, to enter a bear market.

Recession fears in the financial markets are mounting, and we have raised the odds of recession from around 10?–?15% at the start of the year to approximately 30% today.

The potential downgrade of over $100 billion worth of investment-grade rated bonds into the high-yield market looms as the next challenge for corporate bonds. The decline in oil and commodity prices may lead to $120–150 billion worth of bonds leaving the investment-grade corporate bond market and entering the high-yield bond market.

Yesterday was the Chinese New Year, and with it comes the year of the Monkey. There are 12 animals in the Chinese zodiac, as it is based on a 12-year cycle. Take note that the Chinese New Year starts anywhere from mid-January to mid-February and is based on the lunar calendar.

In recent weeks, there have been plenty of “groundhogs” in the financial markets and in the financial media. For some investors, the fear is that the market’s performance in January 2016 will be repeated over and over again, as in the classic 1993 film Groundhog Day starring Bill Murray and Andie MacDowell. Other investors fear that 1998 will play out all over again, triggered by central bankers’ policy mistakes, volatile currency markets, wave after wave of currency devaluations, and eventually a sovereign default.

Don’t worry about the January Barometer, which says, “As goes January, so goes the year.” Here we discuss the reliability of this indicator and several factors that may lead to better performance in February. We see opportunities in the stock market in 2016, but suggest caution in the near term as we await clarity on the key issues pressuring investor sentiment.

The Five Forecasters still favor the continuation of the current bull market and no recession. The Five Forecasters, which we first introduced in 2014, are five indicators that, collectively, have historically signaled the increasing fragility of the U.S. economy and a transition to the late stage of the economic cycle and an oncoming recession.

The Fed holds its first FOMC meeting of 2016 this Tuesday and Wednesday, January 26–27, 2016. Without a press conference or a new set of economic and fed funds projections, the Fed must rely on its statement to communicate a complicated message to fragile markets.

Emerging markets debt (EMD) valuations have cheapened in recent weeks, as weaker Chinese economic data and lower oil prices pushed prices lower and yield spreads higher. The average yield spread closed at 4.6% on Friday, January 15, 2016, essentially matching the post-recession peak of August 2015; and the average yield to maturity rose to 6.25%, the highest since mid-2011 and the height of European debt fears.

During periods of economic volatility, investors sometimes abandon the tools for evaluating markets and the economy that had been serving them well before the volatility started. Good tools, however, should continue to provide insight, which is why we are turning, once again, to the latest Beige Book from the Federal Reserve (Fed) as we gauge the health of the broad U.S. economy as 2015 ended and 2016 began.

The number of bulls is dwindling. In periods of extreme market volatility such as we have experienced in recent weeks—and Friday, January 15, 2016, in particular, when the Dow was down over 500 points at one point before paring losses—we find it helpful to try to take some of the emotion out of our investment decisions. As difficult as that can be at times, this approach can help us reduce the chances of selling at the bottom, even though the natural reaction for many is to panic and hit the sell button.

Once again, the precipitous decline in the value of the Chinese stock market has spilled over to the broader global financial markets. The value of the Shanghai Index declined almost 15% since the beginning of the year, or at least the beginning of our year. China’s social and economic life is geared around the lunar New Year, which will be celebrated on February 8, 2016. The New Year makes a big difference in China, both psychologically and in real economic activity.

In Part 2 of our Federal Reserve (Fed) rate hike playbook, we assess how municipal bonds have fared during periods of Fed rate increases. In the first full week of trading for 2016, Fed rate hike expectations declined in response to another bout of Chinese economic concerns and a benign message from the Fed meeting minutes, which appeared to cast doubt on whether the Fed would ultimately follow through on its forecast of roughly four rate increases in 2016.

High-yield bond selling, or the threat of selling, has sparked one of the worst sell-offs in the high-yield bond market since the summer of 2011 and the peak of European debt fears. The origin of high-yield weakness has come from the lowest-rated tiers of the high-yield market but has infected the broader market. Last week’s redemption freeze by an $800 million high-yield strategy, and news of a similar halt by a smaller fund over the weekend of December 12–13, 2015, intensified pressure on the high-yield bond market.

The Fed holds its eighth and final FOMC meeting of 2015 this Tuesday and Wednesday, December 15–16, 2015. As of Monday, December 14, 2015, the fed funds futures market has priced in about an 80% chance of a 25 basis point (0.25%) rate hike at this week’s meeting. Our view remains that the timing of the first hike matters less than the pace of the hikes; the end point for the fed funds rate in this tightening cycle and the gap between the Fed’s own view of rates and the market’s view remain crucial.

High-yield bond weakness has led investors to fear that a recession or bear market may be forthcoming. Widening of high-yield bond spreads (the spread between yields on high-yield bonds and comparable U.S. Treasuries) preceded the start of the stock market downturns in 2000 and 2008, causing many to ask if the latest bout of high-yield weakness portends another downturn. Here we try to answer that question by looking at characteristics unique to the high-yield bond market and prior periods of similar high-yield weakness.

We expect a limited return environment may persist in 2016 and the year as a whole may look similar to 2015. High valuations, steady economic growth, and the lingering threat of Federal Reserve (Fed) rate hikes may keep pressure on bond prices in 2016. We do not envision a recession developing, which we believe is ultimately needed for a sustained move higher in bond prices.

Our view is that the U.S. economy—as measured by real gross domestic product (GDP)—is likely to post growth of 2.5–3.0% in 2016. This rate is below its post-World War II average of 3.2%, but above the 2–2.5% average growth rate seen in the first six-and-a-half years of this expansion, based on the factors discussed below. Despite the length of the current expansion (already the fourth longest on record), it has not followed what would be considered a routine path.

Gains in 2016 may require tolerance for volatility. Stocks historically have offered a tradeoff of higher return for higher risk, the gain of more upside than high-quality bonds versus the pain of market volatility and losses. For the last few years, U.S. stock markets provided below-average pain, while still providing strong returns. Between October 2011 and July 2015, the S&P 500 Index went nearly four years without a “correction” of more than 10%, while climbing an average of 20% a year.

The inverse correlation between stocks and high-quality bonds failed to hold over the past week, after holding for October 2015, suggesting other forces are at work. The answer to the bond market’s indifference to risk asset performance may lie in market fixation over a possible Federal Reserve (Fed) rate hike in December 2015. According to fed fund futures pricing, market expectations for the timing of the Fed’s first rate were essentially unchanged, with the probability of a December rate hike marginally lower on the week to 64% from 70%.

Our thoughts are with the victims of Friday’s terrorist attacks in Paris. Events like this stir up many powerful emotions, including anger, fear, sadness, confusion, and regret, and these emotions are not easily suppressed. It is difficult to shift our attention away from this tragedy and toward the financial markets in times like this, but it is our responsibility to do so. Here we look at the potential stock market impact of Friday’s tragedy.

We do not believe last week’s sell-off is the start of a spike in interest rates. In fact, the spike may have already occurred with the 10-year Treasury yield higher by nearly 0.4% since October 14, 2015. The 30-year Treasury yield has also undergone a significant adjustment [Figure 1]. Yields on both 10- and 30-year benchmark Treasury yields have broken above the September highs and are within striking distance of 2015 highs of 2.5% and 3.2%, respectively. From a technical perspective, a breach above these levels would be needed to sustain a breakout to new yield highs.

Earnings overseas have generally not kept up with the U.S. We spend a lot of time dissecting earnings season in the U.S. because we believe earnings are the single biggest driver of stock prices over the long run. But earnings are not just important for U.S. stocks, they are also important for stocks overseas. This week we provide an earnings update in Europe and Japan, where results thus far have mostly fallen short of those in the U.S.

According to our new Corporate Beige Book, China has been a popular subject of discussion among corporate management teams this earnings season. Similar to the Federal Reserve’s (Fed) Beige Book, a qualitative assessment of the U.S. economy and each of the 12 Fed districts, conference call transcripts for third quarter 2015 company earnings reports can be used to create a Corporate Beige Book—a window into corporate America.