“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected”
– George Soros
- The seesaw continues for risky assets as small caps take the lead for 2019
- Over the last month, all major equity categories have lost money
- Surprisingly, EM stocks have held up the best in this equity correction
- Valuations while more reasonable than 3 months ago are not that favourable
- The key for equity markets is growth and whether we are entering a slowdown or not
Countries & Region:
- A global recovery but with large differences in global market performance
- Commodity indices recovered last week as oil prices firmed up helping resource oriented markets
- In the US Value slightly outperformed Growth last week – higher quality and dividend yield also made a difference
- In international markets Value out-performed Growth by a wider margin than in the US
- Energy performed best and Tech did the worst (Apple effect)
Style & Sector:
- In the US, we saw a strong size effect last week with small caps dramatically out-performing
- Value performed a bit better than Growth
- Within equity styles, Quality and Div Yield strategies resulted in better performance
- The Momentum trade has gone in reverse with last year’s biggest loser performing the best thus far in 2019
- Latam shot up last week recovering from poor 2018 performance and the rise in oil prices
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 65% of stocks in the Down Trend Phase
- Political drama in Washington is exacerbating the uncertainty of market participants
- Brexit is up for the spring 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 but had a nice recovery
- 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
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