“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?”
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►Everybody seems concerned about slowing global growth but equity markets have staged a remarkable recovery after a dismal Q4 – last week was exceptional with small caps leading the way
►US Large cap, blue chips have outperformed in the last month
►Small caps, not surprisingly, have been a lot more jumpy but YTD are slightly ahead US large caps
►Over the last 12 months, US equities are up while 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:
►Despite concerns about global economic growth, all major equity markets with the exception of Australia had strong positive returns last week
►Commodity indices were up big last week as oil prices continued firming up due to supply cuts
►In the US Value did very well beating Growth by close to 1%
►In international markets Value out-performed Growth by a smaller margin driven primarily by sector differences
►Globally, Discretionary, Financials and Materials out-performed last week while lower beta sectors such as Staples and Utilities lagged behind
Style & Sector:
►In the US, we saw Small Caps do better than large caps
►The size effect in the US was really strong last week in favor of small caps
►Within equity styles, Quality strategies out-performed
►The Momentum factor has lost “mo” – momentum stocks have underperformed the general market this year
►International equities last week took a hit as the USD remained strong 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 but last week was exceptional
►We believe that a risk on/off market is likely this year
►Equity Technicals have improves significantly this year and we no longer believe that we are in a nascent Bear Market
►Brexit is up for yet another delay 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
►We believe that the US yield curve will become positive again as people realize that growth while slowing down is still ok
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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