Markets enjoyed a month of strong gains following the resurgence in oil prices and reassurances from the Fed about rate hikes. The rising possibility of a production freeze and weaker-than-expected increases in crude inventories were among the factors fueling the rise in prices. Additionally, an earlier reluctant Iran has shown indications of joining talks on production controls. Moreover, the Fed has kept rates unchanged and said the number of hikes through the year is likely to decline. Fed Chair Janet Yellen also emphasized that a cautious stance will be taken while considering rate increases. Economic data has once again remained mixed in nature though GDP and employment numbers continued to improve.

March’s Performance

For the month, the S&P 500, the Dow and the Nasdaq advanced 6.7%, 7.1% and 6.8%, respectively. The S&P 500 experienced its highest percentage monthly gain since October. Benchmarks closed in the green for the month following strong gains in energy, technology and materials sector, reduced rate hike fears and upward movement in oil prices.

Oil prices increased following positive comments from ministers and officials of both OPEC and non-OPEC countries. However, the terrorist attack in Brussels curbed some of the gains in oil prices.

Separately, the Federal Open Market Committee (FOMC) decided to keep interest rates unchanged and forecast that the number of rate hikes this year will be two instead of four. Also, Fed Chair Janet Yellen’s indication that Fed should take a cautious stance before hiking interest rates last month boosted investor sentiment. Meanwhile, economic data remained mixed during the month.

For the quarter, both the S&P 500 and the Dow gained 0.8% and 1.5%, respectively. However, the Nasdaq declined 2.8% and posted its worst first quarter performance since 2009. The Nasdaq fell during the quarter after the iShares Nasdaq Biotechnology (IBB) plunged 22.9%. The oil rebound, improving U.S. economy and reduced rate hike possibilities had a positive impact on the market.

Oil Rebound Powers Market’s Gains

Crude prices have made a strong resurgence since the second half of February. This was one of the most important catalysts of the surge in markets over the month. WTI crude rose by 14% in March, while Brent crude increased 10%, its highest gain since Apr 2015. Rising possibilities of a production freeze, a weaker-than-expected rise in crude inventories and a decline in oil rig count played major roles in boosting oil prices in March.

The major oil producing companies will be meeting on Apr 17 to discuss an oil production freeze in order to boost oil prices. Meanwhile, Iran, which previously showed an unwillingness to enter into any such agreement, recently expressed interest in joining the meeting.

Moreover, the U.S. Energy Information Administration (EIA) reported on Wednesday that U.S. commercial crude oil inventories rose 2.3 million barrels to 534.8 million for the week ended Mar 25. This was lower than an increase of 2.6 million barrels reported by the American Petroleum Institute (API) a day earlier.

Additionally, rigs engaged in exploration and production in the U.S. plunged by 12 units from the previous week to an all-time low of 464 during the week ended Mar 24, according to Baker Hughes Inc. (BHI). Also, oil rig counts fell by 15 from the previous week to 372, which is well below the previous year’s rig count of 813.

Q4 GDP Revised Upward

The “third” estimate by the Bureau of Economic Analysis showed that the fourth quarter output of goods and services increased at an annual rate of 1.4%, more than the consensus estimate of a 1% rise. Fourth-quarter GDP data was revised upward from the previously estimated 1% increase.

However, the decline in corporate profits emerged as one of the main concerns in the fourth quarter. In the fourth quarter, after-tax profit slumped 8.4%, witnessing the largest decline since 2014’s first quarter. Corporate profits plunged 5.1% in 2015, its biggest percentage fall since 2008.

Substantial Job Additions, Fall in Wage Increase

The U.S. economy created a total of 242,000 jobs in February, significantly beating the consensus estimate of 194,000. The tally was also considerably higher than January’s upwardly revised figure of 172,000. Meanwhile, the unemployment rate in February was in line with the consensus estimate and January’s level of 4.9%.

However, average hourly earnings declined 0.1% or 3 cents in February from the previous month’s figure to $24.80 per hour, in contrast with the consensus estimate of a 0.2% rise. Despite the decline, average hourly earnings witnessed a 2.2% rise from the year-ago figure. The average workweek of 34.4 hours in February fell by 0.2 hours from the previous month’s figure. It was also lower than the consensus estimate of 34.5 hours.

Mixed Domestic Data

Data released through the month was again mixed in nature. The ISM manufacturing index increased 49.5% in February, coming in above consensus expectations. Factory orders increased after declining in January. Construction spending increased more than expected. Consumer confidence also came in above expectations for March.

Personal spending increased 0.1% in February, in line with both the consensus estimate and January’s revised reading. Also, personal income increased by 0.2%, exceeding the consensus estimate.

Among the discouraging set of data, industrial production fell more than expected. Retail sales also declined, though in line with expectations. The ISM services index also moved lower.

Additionally, personal consumption expenditure price index (PCE) rose 0.2% in February, while remaining unchanged in January. PCE showed an increase of 1% year over year, lower than an increase of 1.2% in January. Core PCE increased 0.1%, lower than the consensus estimate of a 0.3% gain. However, core PCE increased 1.7% in the last 12 months.

Housing Recovery Gains Pace

The majority of this month’s housing related indicators revealed that the pace of growth had quickened. Construction spending increased to its highest level since Jan 2007. Housing starts increased 5.2% from January to a five-month high in February. Meanwhile, new home sales rose in line with the consensus estimate. Pending home sales increased to a seven-month high.

However, a few of the reports highlighted causes for concern. Existing home sales tumbled in February after reaching a six-month high in January and also came in below the consensus estimate. Meanwhile, the National Association of Home Builders (NAHB)/Wells Fargo housing market index (HMI) remained flat at 58 in March. S&P/Case-Shiller Home Price data revealed that 20-City composite index rose 5.7% year over year with prices reaching its highest level since late 2007.

FOMC Policy Statement

After concluding the two-day policy meeting, the FOMC decided to keep interest rates flat at between 0.25% and 0.50% and forecast that the number of rate hikes this year will be two instead of four as projected in its December meeting. The committee stated that "global and financial developments continue to pose risks," which remain one of the main reasons behind the no-rate-hike decision.

Though the committee reduced its forecast for economic growth and offered an inflation rate outlook for this year which was weaker than that expected earlier, it highlighted that “economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months.”

FOMC lowered 2016’s personal consumption expenditures (PCE) forecast from December’s estimate of 1.6% to 1.2% yesterday. While a key inflation measure, core PCE projection was kept in line with the earlier estimate of 1.6%. Also, the central bank reduced the GDP growth outlook from 2.4% to 2.2% for 2016 and from 2.2% to 2.1% for 2017.

Fed Chair’s Comments

Speaking about the policy statement ,Fed Chair Janet Yellen said: “concerns about global economic prospects have led to increased financial market volatility and somewhat tighter financial conditions in the United States.” However she added: "the committee certainly thinks that risks to the outlook have diminished.”

Despite the fact that the FOMC has projected that inflation rate would remain below the 2% target “in the near term,” Yellen said: “The committee continues to feel that we are on a course where the economy is improving and inflation is moving back up.” 

In a speech to the Economic Club of New York, Yellen said less favorable global economic and financial conditions “have increased the risks” to the Fed’s outlook. She added that given the risky outlook she considers “it appropriate for the Committee to proceed cautiously in adjusting policy.”

On inflation, she said that “it is too early to tell if this recent faster pace” in Core PCE “will prove durable.” Yellen’s dovish statement reduced rate hike possibilities in April and in turn had a positive impact on investor sentiment.

4 Star Performers for March

I ran a screen on Research Wizard for companies with the following parameters:

1. Percentage price change over the last 4 weeks greater than or equal to 20%
2. Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
3. Expected earnings growth for the current financial year greater than or equal to 20%
4. Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.

Here are the top 4 stocks that made it through this screen:

Yirendai Ltd. (YRD - Snapshot Report) is a Beijing based company involved in the online consumer finance business.

Price gain over the last 4 weeks = 97.8%
Expected earnings growth for current year = 24.1%

Yirendai has a Zacks Rank #2 (Buy). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.97x.

Teekay Offshore Partners LP (TOO - Snapshot Report) is an international provider of marine transportation and storage services to the offshore oil sector.

Price gain over the last 4 weeks = 69.8%
Expected earnings growth for current year = 22%

Teekay Offshore Partners holds a Zacks Rank #2 and has a P/E (F1) of 2.76x.

Federal-Mogul Holdings Corporation (FDML - Snapshot Report) is a leading global supplier of powertrain, chassis and safety technologies.

Price gain over the last 4 weeks = 34.2%
Expected earnings growth for current year = 27.3%

Apart from a Zacks Rank #1 (Strong Buy), Federal-Mogul Holdings has a P/E (F1) of 9.4x.

Ascena Retail Group Inc. (ASNA - Snapshot Report) operates as a national specialty retailer of apparel for women and girls.

Price gain over the last 4 weeks = 23.3%
Expected earnings growth for current year = 30.5%

Ascena Retail holds a Zacks Rank #1 and it has a P/E (F1) of 12.82x.

Can Stocks Maintain Momentum in April?

Stocks have improved over the month primarily because of the resurgence in crude prices and the cautious stance adopted by the Fed. Data releases have consistently shown that crude inventories are increasing, but at a slower-than-expected pace. Moreover, talks regarding a production freeze are likely to be held with Iran showing indications of participating. This is why most market watchers believe that prices will hover near the $40 mark over the next month.

Additionally, the Fed’s reassurances have eased concerns about a possible rate hike. The number of rate hikes through the year is also likely to be lower, providing investors with a longer-term perspective. These factors are likely to provide the market with the stability it requires. If economic data also improves, stocks could receive further impetus for gains. Given these factors, it is likely that markets will continue to enjoy the positive momentum over the next month.