During the first quarter of 2015, US stock markets were buffeted by two substantial shocks. The buffeting continues into the second quarter.

The first shock involved the energy sector and the abrupt and persistent decline in the oil price. Certain grades of oil and related energy products are now more than 50 percent cheaper in the United States. We expect the downward pressure to continue. As this note is written, the quarter ends with falling oil prices. The outlook for most, if not all, of 2015 is a continuation of low oil prices. The range of prices is not easily predictable; we have estimates as low as $20 to $30 per barrel.

The second shock came from the European Union, particularly the European Central Bank (ECB). Central bank policy in the Eurozone is now based upon negative interest rates on the highest-grade sovereign debt. The ECB policy rate is minus 20 basis points, or -0.20 percent. The ECB has said that it will acquire sovereign debt of Eurozone countries as part of its expanded quantitative easing (QE) program and that is it willing to pay negative interest rates as long as the negative rate is no lower than -0.20 percent. This is an unprecedented policy both with regard to its longevity (18 months) and its size ($1 trillion equivalent).

Those negative interest rates are having an impact worldwide. They are suppressing interest rates elsewhere, including the US. The outlook is for this Eurozone and ECB policy to continue through most if not all of 2016. Though no one can forecast the ultimate outcome of this policy, our best guess is that it will continue to suppress interest rates on a global basis: those rates will be lower than they would otherwise be. We cannot say by how much.

The combination of these two shocks is very bullish for the non-Energy sectors of the US. Very low interest rates, low inflation, and a slow but steadily improving economic growth profile is the likely outcome in the US. This scenario is bullish for all asset prices, particularly for the US stock markets. As the quarter comes to a close, Cumberland Advisors’ US exchange-traded fund (ETF) accounts are fully invested. We anticipate that our clients will participate in the upward movement of stock prices.

The ideas and opinions expressed in this blog are those of the author, and they should not be perceived as investment advice or as any other kind of advice.

The preceding is a commentary by Cumberland Advisors and has been reposted with permission. Cumberland Advisors commentaries are available at http://www.cumber.com/commentary_archive.aspx.

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