Benjamin Lavine, CFA, CAIA
January 2019 Highlights:
- Global stocks (MSCI All-Country World Index or ACWI) returned 7.9% led by Emerging Markets (8.8%) and the S&P 500 (8.0%); Japan and Europe lagged, returning 6.6% and 6.1%, respectively.
- The S&P 500 rose 8% in January led by strength in cyclical stocks like Energy and Industrials; defensive sectors – Utilities, HealthCare, Staples – lagged the broader recovery. Real Estate outperformed both the broader market as well as Utilities, which was negatively impacted by the PG&E bankruptcy filing.
- U.S. Stocks: Small caps outperformed large caps, and value outperformed growth.
- U.S. thematic, risk-based factors: Value and Quality outperformed Momentum, Minimum Volatility, and High Dividend.
- Fixed income: Strong returns posted by emerging market debt and U.S. high yield demonstrate recovery in risk-based assets. Broader investment grade fixed income (Barc Agg) benefited from drop in U.S. interest rates following dovish Fed comments.
- 10-Year U.S. Treasury Yield dropped to 2.63% at month-end, down from 2.68% at the beginning of the month. With both an equity and a bond market rally, investors seem to be pricing in a soft landing (not-too-hot, not-too-cold economy).
- Investors are looking to the future: 1) U.S./China trade agreement to head off the March 1 deadline of additional U.S. tariffs; 2) Brexit resolution or delay to avoid a ‘hard’ exit at the end of March; and 3) Federal Reserve’s 180 degree turn from early 4Q2018 comments on rate hikes and balance sheet normalization.
- Can the Fed and China engineer a soft landing that maintains the current global growth cycle, while not prompting global central banks to tighten? Remains to be seen.
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