Risk Loving is in but for how long?
►The comeback for holders of risky assets was interrupted this week as growth concerns returned
►EM, Commodities and Reits had poor weeks as commodity prices suffered again and interest rates increased in the US
►On a YTD basis US small caps lead the pack by a wide margin – up 18.1%
►In the context of balanced 60/40 strategies US strategies out-performed strategies more globally focused
►Aggressive focused multi-asset class strategies out-performed less risky options
►Within equities, Growth has slightly out-performed Value in 2019 and over the last year Growth also remains solidly ahead
►Thus far in 2019 more aggressive multi-asset strategies have outperformed
Currencies:
►Flat week fort the USD
►For 2019 we still expect the USD to depreciate slightly
►A depreciating USD will boost international asset returns – we expect this effect to persist in 2019
►A big question mark for this coming week is what happens to Brexit (yet again) – sterling is being massively tossed around depending on political prospects
►The Yen is now in a Break Down phase as investors have regained their desire for risk
►In general, FX volatility has increased substantially in the last couple of months
Commodities:
►Commodity indices have moved into an Improving phase as oil markets have found some stability
►Gas was up big last as it became less oversold
►Copper moved down slightly after a big spike up the previous week – still very growth oriented
►Gold and Silver were slightly down last week and are showing divergent patterns
►While inflationary expectations remain low, commodity prices are an excellent hedge should things change
This Coming Week:
►While risky assets have recovered we still think that risk is being shunned at the moment – investors seem uncomfortable making bod bets
►While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations and a depreciating USD
►The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
►The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
►We are also watching out for any jump in inflationary expectations (which have been trending down)
►Tariffs are inflationary and will be reflected in higher consumer prices eventually
►Our biggest concerns revolve around a slowing global economy – The IMF recently lowered 2019 growth numbers to 3.5%
►We still see a risk on/off market this year making it difficult for short-term investors – probably best to extend horizons
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ic J. Weigel
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