Asset Allocation Insights – Bad and Getting Worse for Equity Investors

Investors Shun Equities

A slow week with a bit of cheer for equity investors
US small caps recover the most – up 1% for the week but still down 21% over the last three months
REITS gave back some gains last week (down 1.7%) and are now also in negative territory for 2018
Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
Aggressive, domestically focused multi-asset class strategies out-performed less risky options
YTD lower risk asset allocation strategies have outperformed especially if allocations involved international equities
Within equities, Growth slightly under-performed Value but Growth remains solidly ahead for the year
Cash remains the best performing of the major asset classes for the year

Currencies:

The USD is losing some strength as budget discussions in Washington remain unresolved and the Fed has indicated being close to done with rate hikes
A depreciating USD will boost international asset returns
The British Pound continued depreciating due to major uncertainty regarding BREXIT early in 2019
The Yen is now in a Break Out phase as investors remain very risk-averse and the Yen is usually considered the “safe” trade
Resource-oriented currencies experienced the biggest losses last week relative to the USD as commodity prices remain in a Down Trend
In general, FX volatility has increased substantially in the last couple of months

Commodities:

Commodity indices continue in a Down Trend as oil markets had another down leg
On the flipside, grain prices have been recovering since the summer
Natural gas prices were down over 8% due to warmer predicted weather and lower levels of fuel switching than anticipated
Gold and Silver had good weeks as investors have become more risk averse and the Fed has indicated only 2 more rate hikes for 2019
However, we still view US Treasuries as the best hedging option for equity risk

This Coming Week:

The year of risk-off continues with little to offer us hope that risky assets will recover soon – there may be a spike in January but risk is being shunned at the moment
While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
We are also watching out for any jump in inflationary expectations (which have been trending down). Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are recovering. We still believe that an allocation is warranted. Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
Leverage on the balance sheet of companies should be cross-checked for sustainability
We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

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 – Paralyzed by Fear

“Everything you’ve ever wanted is on the other side of fear”

– Jack Canfield

The seesaw continues for risky assets –a punch in the nose
Last week was particularly bad as equity markets took a deep dive again
Surprisingly, EM stocks have lost the least over the last month but YTD remain the worst of the major equity categories
YTD US large caps are now in negative territory

International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

The carnage continues –all major global markets took a nosedive with the US suffering the most
Commodity indices took another down leg last week as oil prices dropped again (-13%)
REITS are now down 2% for the year after a brutal -5.8% week
In the US Value and Growth both got pounded last week with Value outperforming by 1%
In international markets Growth under-performed Value last week by 50 bp.
Tech and Energy got hit the hardest last week

Style & Sector:

In the US, we saw a strong size effect last week with small caps dramatically under-performing
Value performed almost as badly as Growth
Within equity styles, Low Vol and Div Yield strategies resulted in smaller losses
The Momentum trade has gone in reverse
Emerging markets outperformed Developed international markets but remain still 15.5% down 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 close to ¾ of our stocks are in the Down Trend Phase
Political drama in Washington is exacerbating the uncertainty of market participants
Brexit is up for next year but prospects of passing Parliament are slim. Could we be staring at Referendum 2.0?
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.
Our models still favor a reduction in risk in our portfolios with positive active allocations to cash and bonds
This too shall pass but market participants are hyper nervous on things companies have no control over
The price of higher equity returns is discomfort – volatility has been too low in the last few years

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 – Risk Is Off The Table

Investors Want No Part Of Risk

Another tough week for risky assets with no end in sight
US small caps take yet another down leg and are now down 7% for the year
REITS gave back some gains last week but remain our best key asset class for 2018 – up 4.1%
Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
Aggressive, domestically focused multi-asset class strategies under-performed less risky options
YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
Within equities, Growth outperformed Value as Energy and Financials experienced large loses

Currencies:

The USD appreciated yet again last week and remains in a significant Up Trend
The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
The Yen continues in a Down Trend especially in light of lower economic growth in Japan
In general, FX volatility has increased substantially in the last couple of months

Commodities:

Commodity indices continue in a Down Trend as oil markets had another down leg
On the flipside, grain prices have been recovering since the summer but surprisingly soybeans were down despite increased Chinese purchases
Natural gas prices were down over 16% due to warmer predicted weather and lower levels of fuel switching than anticipated
Gold and Silver were slightly down last week but their technical picture has improved recently as risky assets continue cratering
- We still view US Treasuries as best hedging option for stocks

This Coming Week:

The year of risk-off continues with little to offer us hope that risky assets will recover soon
While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
We are also watching out for any jump in inflationary expectations (which have been trending down)
- Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are recovering but will end up in the red this year
- We still believe that an allocation is warranted
- Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
Leverage on the balance sheet of companies should be cross-checked for sustainability
We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

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 – Utilities Shine While Everything Else Gets Destroyed

Utilities are the new cool kids on the block

- The seesaw continues for risky assets but utilities emerge as the standout performer
- Last week was particularly bad as equity markets took a deep dive again
- 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 0.3% for the year while the Russell 2000 is down 4.6%
  - International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

The carnage continues –all major global markets took a nosedive with Germany suffering the most
Commodity indices recovered last week as oil prices moved marginally up
REITS continue to be the standout performer – up 1.6% last week and over 6% for the year
In the US Value and Growth both got pounded last week (down 3.8%)
In international markets, Growth outperformed Value last week
- Utilities continue delivering – only equity sector up last week

Style & Sector:

In the US, we saw a strong size effect last week with small caps dramatically under-performing
Value performed as badly as Growth despite Utilities being up for the week
Within equity styles, Low Vol and Div Yield strategies resulted in smaller losses
The Momentum trade has gone in reverse and Growth Stocks are key losers but remain ahead YTD
Emerging markets outperformed Developed international markets but remain still 13% down for the year
EM LATAM continues extremely volatile and was down 2% last week

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
The exception are Utilities where 68% of our stocks are in an Up Trend
The political drama in Washington is exacerbating the uncertainty of market participants
Brexit is up this week – will the Parliament vote for it?
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 underperformed 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
Our models still favor a reduction in risk in our portfolios with positive active allocations to cash and bonds

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 – Federal Reserve Words Stop the Bleeding for Now

Federal Reserve Indicates Rates Close to Target

Risky assets roar back after last week’s tough week as the Federal Reserve indicates that short-term rates are close to “normal”
US large cap, in particular, staged a nice earnings-related recovery
REITS continue quietly performing well – up 5.8% for the year (best among our key asset classes)
EM stocks also continue their recovery an are up 2.5% over the last month
Aggressive, domestically focused multi-asset class strategies outperformed less risky and more internationally focused allocations
YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
Commodities remained volatile and subject to the direction of oil prices – the trend is still negative

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 continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
The Mexican Peso recovered a bit last week as a new administration is sworn in this week
In general, FX volatility has increased substantially in the last couple of months

Commodities:

Commodity indices continue in a Down Trend as oil markets had another down leg
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 slightly down last week and 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 and the end may be near as the Fed indicates rates close to “normal”
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 (which have been trending down)
- Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are recovering but will end up in the red this year
- We still believe that an allocation is warranted
Growth outperformed Value last week but we are seeing signs of industry rotation toward value sectors
- The Momentum trade while still ahead YTD is losing strength despite a bif up week
The G20 meeting concludes – the US and China are still at odds over tariffs but maybe rational minds will prevail?

__________________________________________________________________________________

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

Monthly Archives: December 2018

Investors Shun Equities

Currencies:

Commodities:

This Coming Week:

Publications:

“Everything you’ve ever wanted is on the other side of fear”

– Jack Canfield

Countries & Region:

Style & Sector:

This Coming Week

Publications:

Investors Want No Part Of Risk

Currencies:

Commodities:

This Coming Week:

Publications:

Utilities are the new cool kids on the block

Countries & Region:

Style & Sector:

This Coming Week:

Publications:

Federal Reserve Indicates Rates Close to Target

Currencies:

Commodities:

This Coming Week:

Publications: