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Monthly Archives: February 2019

Equity Market Insights – Amazing Recovery But For How Long?

https://gf-cap.com

“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes”

– Jack Bogle

►Equity markets have staged a remarkable recovery after a dismal Q4

►Over the last month, US small and large caps have performed the best

►Over the last 12 months, US equities are up slightly while International still show large losses

►Valuations are still stretched in the US but growth and profitability are hanging in

►The key for equity markets is global growth and whether we are entering a slowdown or not

Countries & Region:

►A global recovery for most but with large differences in global market performance

►Commodity indices continue their recovery as oil prices firmed up helping resource oriented markets

►In the US Value slightly outperformed  Growth last week, but the main style effect was size (the smaller the better)

►In international markets Value under-performed Growth by a wide margin driven primarily by sector differences

►Globally, Energy and Industrials performed best last week while interest-sensitive sectors such as Telecom and Utilities under-performed


Style & Sector:

►In the US, we saw Small Caps do best

►The size effect in the US was really strong last week

►Within equity styles, Quality strategies continue shinning

►The Momentum has lost all “mo” – momentum stocks have underperformed the general market

►Developed Europe rebounded strongly last week despite growth concerns

►Latam has vastly outperformed EM Asia – YTD it is up nearly double the EM index


This Coming Week:

►It’s been a huge surprise how strong equity markets have been this year especially in the US

►Equity Technicals have improved to the point that only 13% of stocks remain in the Down Trend Phase

►The strength of the stock price recovery has been so extreme that a quick reversal would not be out of the question

►Political drama in Washington is exacerbating the uncertainty of market participants but investors seem to be in denial thus far in 2019

►Brexit is up for the spring but prospects of passing Parliament are slim. Could we be starring 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

►Our models still favor a reduction in risk in our portfolios with positive active allocations to cash and bonds

►The price of higher equity returns is discomfort – volatility has been too low in the last few years

►This coming week has huge earnings implications. Lots of companies reporting Q4.

►While Value is holding its own with Growth we still see the action at the sector level rather than in terms of pure valuation

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

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

______________________________________________________________________________

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 – Lower Growth Hits Equities


Taking a Breather Due to Lower Potential Growth

►The comeback for holders of risky assets was interrupted this week as growth concerns took over the agenda

►US assets managed to eke out gains with REITS especially having a good week

►EM and International equities had down weeks both in local currency as well as in USD terms

►On a YTD basis US Small Cap and REITS are in the lead – up 11.8%

►Commodity indices had a poor week as energy prices suffered large losses this past week

►In the context of balanced 60/40 strategies US strategies out-performed strategies more globally focused

►Aggressive, domestically focused multi-asset class strategies under-performed less risky options

►Within equities, Growth has slightly under-performed Value in 2019 but over the last year Growth remains solidly ahead

►Thus far in 2019 more aggressive multi-asset strategies have outperformed

Currencies:

►The USD had a strong week, up over 1%, despite ongoing budget discussions in Washington and a pause by the Fed in raising rates

►For 2019 we still expect the USD to depreciate slightly

►A depreciating USD will boost international asset returns – we expect this effect to persist in 2019

►A big question mark for this coming week is what happens to Brexit (yet again) – sterling is being massively tossed around depending on political prospects

►The Yen is now in an Up Trend phase as investors remain risk averse and the Yen is usually considered the “safe” trade

►RResource-oriented currencies experienced losses last week relative to the USD  as oil and gas prices trended down

►In general, FX volatility has increased substantially in the last couple of months

Commodities:

►Commodity indices continue in a Down Trend even as oil markets have found some stability

►Oil and gas were down big last week due to warmer weather in the US and oversupply conditions

►Soybean prices should be firming up as a trade deal with China gets some traction

►Gold and Silver while slightly down last week are becoming a hedge for nervous equity investors

►However, we still view US Treasuries as the best hedging option for equity risk

This Coming Week:

►While risky assets have recovered we still think that 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 and a depreciating USD

►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

►Our biggest concerns revolve around a slowing global economy – The IMF recently lowered 2019 growth numbers to 3.5%

►We still see a risk on/off market this year making it difficult for short-term investors – probably best to extend horizons

►In general, investors seem very pessimistic making contrarian plays interesting from a tactical perspective

Earnings season in the US is in full swing

__________________________________________________________________________________

To read our full weekly report please click here

ic 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 – The Beat Goes On For Equity Investors

https://gf-cap.com

“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes”

– Jack Bogle

►Equity markets have staged a remarkable recovery after a dismal Q4

►Over the last month, US small caps and EM stocks have performed the best

►Over the last 12 months all major equity asset classes are down with US Large Cap the least and EM the most

►Valuations while more reasonable than 3 months ago are not yet favorable – we may be seeing a reversal from the q4 downdraft, not a fundamental uptrend

►The key for equity markets is global growth and whether we are entering a slowdown or not

Countries & Region:

►A global recovery for most but with large differences in global market performance

►Commodity indices continue their recovery as oil prices firmed up helping resource oriented markets

►In the US Value and Growth performed in line last week, but higher dividend yield stocks really rocked it

►In international markets Value under-performed Growth by a wide margin driven primarily by sector differences

►Globally, Staples and Energy performed best last week while Financials gave back some of the gains from the previous week


Style & Sector:

►In the US, we saw Large Caps  do best

►The size effect in the US was strong (in reverse of expectations)

►Within equity styles, Dividend Yield and Quality strategies resulted in better performance

►The Momentum trade has made a bit of a comeback in 2019 – it’s up 7% YTD

►Latam shot up last week – the index is up 14.7% for the year


This Coming Week:

►Risk Aversion should spring up this week with more earnings in the US

►Equity Technicals have improved to the point that only 13% of stocks remain in the Down Trend Phase

►Political drama in Washington is exacerbating the uncertainty of market participants but investors seem to be in denial thus far in 2019

►Brexit is up for the spring but prospects of passing Parliament are slim. Could we be starring 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 are the best performing major asset class in 2019 after a dismal 2018 – some of it is due to a snap back but we are still underweight small caps

►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

►The price of higher equity returns is discomfort – volatility has been too low in the last few years

►This coming week has huge earnings implications. Lots of companies reporting Q4.

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

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

______________________________________________________________________________

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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