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Equity Market Insights – Amazing Recovery But For How Long?

“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


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