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Equity Market Insights -A well-behaved market that will not last

https://gf-cap.com

 

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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