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Equity Market Highlights – Cold Showers Never Feel Good in March

https://gf-cap.com

“Is the market high only because of some irrational exuberance— wishful thinking on the part of investors that blinds us to the truth of our situation?” 
― Robert J. Shiller

►Equity markets have staged a remarkable recovery after a dismal Q4 but last week was a wake-up call

►Over the last month, US small and large caps have performed in line with each other but ahead of international equity strategies

►Over the last 12 months, US large cap equities are up slightly while US small cap and international still show losses

►Valuations are still a bit 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 equities was interrupted last week as growth concerns returned to the forefront

►Commodity indices were flat last week as oil prices firmed but agricultural markets headed south due to excess supply conditions

►In the US Value slightly under-performed  Growth last week, but the main style effect was size (the smaller the worse)

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

►Globally, Energy, Financials and Health Care under-performed last week while interest-sensitive sectors such as Telecom and Utilities held their own


Style & Sector:

►In the US, we saw Small Caps do worse than large caps

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

►Within equity styles, Quality, Yield, and Low Vol strategies delivered lower losses (lower beta)

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

►International equities last week took a hard hit both in local currency as well as through currency losses

►On a YTD basis developed Europe has outperformed other international strategies


This Coming Week:

►The strength of the equity market recovery has been impressive especially among small caps

►We believe that a risk on/off market is likely this year

►Given the low levels of investor risk aversion we would expect a reversal in the near future

►Equity Technicals have deteriorated to the point that 35% 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

►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

►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

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