Weekly Equity Market Highlights

Global equities out-performed bonds over the last 5 trading days but the big story is the effect of the US Dollar on international asset class performance
EM equities, while on a downtrend, recovered somewhat last week (up 2.6%) but remain down 8% for the year
The recovery of EM as an asset class depends massively on what direction Chinese stocks take – China carries a 30% weight in the MSCI EM index
Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
Growth keeps outperforming Value in the US, but last week the margin was only 10 bp for the Russell 3000
In the US last week was all about market cap – the smaller the cap the better
There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone. We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

Countries & Region:

Good week all around with Australia being the only down market
China recovered nicely but remains in a downtrend for the year
EM equities have been on a downtrend this year but got a reprieve last week – up 2.6%
Lower beta sectors under-performed last week giving up some of the gains from the previous week
Energy stocks keep getting whipsawed but had the best weekly performance – up 2.5%

In the US, small cap won big last week while low vol and yield strategies under-performed
Value and Growth had inline performance but YTD the gap remains quite wide in favor of Growth
EM and International Developed equities out-performed US strategies – big US dollar effect
EM LATAM continues to struggle with Argentina becoming a concern (never mind Venezuela)

Risk Aversion – expect the RAI to jump into the Neutral Zone
- Investors keep under-pricing risk
Will US stocks keep leaping ahead of the rest of the world? Is this just dependent on the USD?
Tariff wars do not seem to have much of an effect on US stocks – will this persist even as Trade negotiations stall?
Will EM equities recover? Seems to be all about the direction of China and the the US dollar at the moment
Are Chinese equities going to further lose ground or is this temporary? Is the down trend due to tariffs or domestic growth issues?

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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