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Equity Market Insights – Global Risk Assets Shoot Up Despite Underlying Tension

https://gf-cap.com

 

“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes”

– Jack Bogle

►The seesaw continues for risky assets as small caps take the lead for 2019 but investors feel the tension

►Over the last month, US small caps and EM stocks have made money

►Over the last 12 months, all major equity asset classes are down with US Large Cap the least and EM the most

►Valuations while more reasonable than 3 months ago are not yet favorable – we may be seeing a reversal from the q4 downdraft, not a fundamental uptrend

►The key for equity markets is global growth and whether we are entering a slowdown or not

Countries & Region:

►A global recovery but with large differences in global market performance

►Commodity indices continue their recovery as oil prices firmed up helping resource oriented markets

►In the US Value outperformed Growth last week – higher dividend yield underperformed but the sector effect was dominant as was the quality factor

►In international markets Value out-performed Growth by a smaller margin than in the US

►Financials performed best and Utilities did the worst (barely positive)


Style & Sector:

►In the US, we saw Midcaps do best followed by large caps

►Value performed a bit better than Growth

►Within equity styles, Quality strategies resulted in better performance

►The Momentum trade has made a bit of a comeback in 2019 but the effect is still uncertain

►EM Asia and Latam shot up last week recovering from poor 2018 performance

 


This Coming Week:

►Risk Aversion should spring up this week unless China and the US reach a deal on tariffs

►Equity Technicals have improved to the point that only 17% 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

►Small caps have massively underperformed large caps over the last 3 months but have had a nice a nice recovery in 2019

►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

►The price of higher equity returns is discomfort – volatility has been too low in the last few years

►This coming week has huge earnings implications. Lots of companies reporting Q4.


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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