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Equity Market Insights – Paralyzed by Fear

“Everything you’ve ever wanted is on the other side of fear”

– Jack Canfield

  • The seesaw continues for risky assets –a punch in the nose
  • Last week was particularly bad as equity markets took a deep dive again
  • Surprisingly, EM stocks have lost the least over the last month but YTD remain the worst of the major equity categories
  • YTD US large caps are now in negative territory
  • International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

  • The carnage continues –all major global markets took a nosedive with the US suffering the most
  • Commodity indices took another down leg last week as oil prices dropped again (-13%)
  • REITS are now down 2% for the year after a brutal -5.8% week
  • In the US Value and Growth both got pounded last week with Value outperforming by 1%
  • In international markets Growth under-performed Value last week by 50 bp.
  • Tech and Energy got hit the hardest last week

Style & Sector:

  • In the US, we saw a strong size effect last week with small caps dramatically under-performing
  • Value performed almost as badly as Growth
  • Within equity styles, Low Vol and Div Yield strategies resulted in smaller losses
  • The Momentum trade has gone in reverse
  • Emerging markets outperformed Developed international markets but remain still 15.5% down for the year

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 ¾ of our stocks are in the Down Trend Phase
  • Political drama in Washington is exacerbating the uncertainty of market participants
  • Brexit is up for next year 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 – risk is being shunned at the moment
  • 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



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