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Monthly Archives: November 2018

Equity Market Highlights – Momentum and Growth Get Mauled

Growth loses its edge as Momentum reverses

  • The last month has been brutal for equity investors
    • Higher rates contributed to this as well as slower expected global growth due to an escalation of tariffs
    • Surprisingly, EM stocks are up over the last month but YTD remain the worst of the major equity categories
  • YTD US large caps are barely in positive territory but US small caps are now down for the year
    • The S&P 500 is up 0.2% for the year while the Russell 2000 is down 2%
    • International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

  • The carnage continues –US growth stocks took a huge pounding last week
  • Commodity indices took a beating last week (due to oil primarily) while the Real Estate market kept recovering
  • In the US Value out-performed Growth over the last 5 trading by over 130 bp
  • In international markets Value and Growth performed in line with each other
    • Traditional Value sectors such as Utilities and Staples outperformed along with Health Care
  • Technology and Energy were the two largest losers last week

Style & Sector:

  • In the US, we saw a strong size effect last week with mega-caps under-performing
  • Value once again out-performed Growth as the Utilities, Health Care and Real Estate performed well
  • The Momentum trade has gone in reverse and Growth Stocks are key losers but remain ahead YTD
  • Developed international markets were down the least last week but remain down 10% for the year

This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated to the point that over half of our US universe in is a Down Trend Phase
  • Tax loss selling is likely to intensify in the next few weeks
  • Tariff wars are taking a bite with the IMF recently citing trade wars as the main reason for a cut in their forecast of global growth
  • Small caps have massively under-performed large caps over the last 3 months – risk is being shunned at the moment
  • Surprisingly EM equities have outperformed developed markets in the last month.
  • REITS have performed extremely well and are YTD our best performing asset class
  • Q3 reporting is heavy in the US – looking for commentary on tariffs, slowing growth, and inflationary pressures

To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – Stocks and Bonds Make Better Friends Under Duress

Stocks & Bonds – Friends Under Duress

  • Last week again showed why you need both stocks and bonds in your portfolio – when one zigs the other one zags
  • The search for assets that effectively diversify equity and interest rate risk is key especially given over-valued stocka nd bond markets
  • Yet another tough week for risky assets with 2 exceptions: Emerging Mkt equities and REITS
  • The outperformance of EM equities was driven by a bounce back in the Chinese market (up 2.8% last week)
  • Conservative (bond heavy) multi-asset class strategies outperformed riskier (heavier equity) allocations
  • YTD lower risk asset allocation strategies have also outperformed especially if the allocations involved international equities
  • Commodities remained volatile and subject to the direction of oil prices – the trend is increasingly negative
  • Within equities, US Midcaps outperformed last week with Value stocks trouncing Growth stocks by 1.1% over the last 5 days
  • A 60/40 mix of purely US assets under-performed last week a global version but remains vastly ahead YTD

Currencies:

  • The USD appreciated slightly last week and remains in a significant Up Trend
  • The South African Rand continues recovering from oversold conditions
  • The British Pound got pounded due to major uncertainty regarding whether BREXIT will pass Parliament
  • Theresa May can’t seem to win even when she resolves major uncertainties (Irish border this week, deal with EU)
  • The Mexican Peso continues its depreciation versus the USD and is firmly in a Down Trend Stage policy
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices had a bad week due to the continued downward trend in oil prices
  • Oil prices dropped 7% last week and are down over 18% over the last 60 days
  • On the flipside, grain prices have been recovering since the summer with soybeans again up last week
  • Lumber prices continue being extremely volatile and remain in a Down Trend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted
  • Value dramatically outperformed Growth last week and we are seeing signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is quickly losing strength
  • Q3 reporting is semi-heavy in the US – looking for commentary on tariffs, slowing growth, and inflationary pressures

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Equity Market Insights – Strong Signs of Sector and Style Rotation

It’s Happening- Signs of Sector and Style Rotation

  • Value sectors are gaining momentum while Growth sectors such as Tech is losing steam quickly
  • Similarly, strategies such as low volatility are gaining ground at the expense of pure momentum strategies
  • The last month has been brutal for equity investors but some signs of stability have emerged
    • Higher rates contributed to this as well as slower expected global growth due to an escalation of tariffs
  • YTD US large and small caps are in positive territory
    • The S&P 500 is up 5.7% for the year while the Russell 2000 is up a meager 1.9%
    • International strategies have underperformed due both to local market returns and a strong USD

Countries & Region:

  • The carnage continues among Chinese stocks
  • Commodity indices took a beating last week (due to oil primarily) while the Real Estate market kept recovering
  • In the US Value out-performed Value over the last 5 trading by over 40 bp
  • In international markets Value outperformed Growth by 90 bp
    • Traditional Value sectors such as Utilities and Staples outperformed along with Health Care
  • Health Care and Technology are the two best sectors YTD but Tech has been losing momentum

 

Style & Sector:

  • In the US, we saw a strong size effect last week with mega-caps outperforming
  • Value once again out-performed Growth as the Utilities, Health Care and Real Estate performed well
  • Growth and Momentum keep dominating YTD among US stocks but the lead is shrinking
  • Developed international markets were flat last week but EM equities took yet another hit
  • EM LATAM continues extremely volatile and driven by politics

This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated but have recovered from the ugliness of prior weeks
  • Tax loss selling is likely to intensify in the next few weeks
  • Tariff wars are taking a bite with the IMF recently citing trade wars as the main reason for a cut in their forecast of global growth
  • Small caps have massively under-performed large caps over the last 3 months – risk is being shunned at the moment
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment. Pretty beat up despite stronger fundamentals
  • REITS have performed extremely well and are YTD only slightly behind US equities
  • Q3 reporting is heavy in the US – looking for commentary on tariffs, slowing growth and inflationary pressures

To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – A Reprieve for Equity Investors but Tariffs Loom Large

A Reprieve for Equity Investors but Tariffs Loom Large

  • Equities recovered last week and fixed income only suffered mild losses last week
  • The best performing asset class last week was Emerging Market Equities
  • Multi-asset class investors enjoyed above-average returns due to the spike in equity values
  • Commodities remained volatile and subject to the direction of oil prices
  • Within equities, US large cap ended up over 2% with Value strategies outperforming Growth by 2%
  • A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD

Currencies:

  • The USD slightly appreciated last week after the significant gain it had the week before
  • The South African Rand recovered over 1% as interest rates provide some support for the beleaguered currency
  • The British Pound gained almost 2% as BREXIT negotiations regained momentum and Sterling monetary policy becomes more normalized
  • The Mexican Peso tumbled as a left-leaning new President encounters economic difficulties and political fallout from US immigration policy

Commodities:

  • Commodity indices had a bad week due to the continued downtrend in oil prices
  • Oil prices dropped nearly 7% last week and are down over 15% over the last 20 days
  • On the flipside, grain prices have been recovering since the summer with soybeans, corn and wheat prices all up last week
  • Lumber prices continue being extremely volatile – lumber was up last week almost 10% but remains in a severe downtrend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

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