Partying Like it is 2017 Again
►The comeback for holders of risky assets such as equities, real estate, and commodities continues
►EM equities perform the best of our major asset classes – up 2.3% for the week and over 9% over the last 3 months
►Developed international equities also had a huge week – up 1.7% and 5% for 2019 thus far
►Commodity indices also made a nice comeback boosted by higher oil prices – up 9.4% for the year already
►Aggressive, domestically focused multi-asset class strategies out-performed less risky options
►In 2018 lower risk asset allocation strategies outperformed especially if allocations involved international equities but the story is reversed thus far this year
►Within equities, Growth has slightly under-performed Value in 2019 but over the last year Growth remains solidly ahead
►Over the last year, only Cash and US Reits exhibit positive returns
Currencies:
►The USD is losing some strength as budget discussions in Washington remain unresolved and the Fed has indicated being close to done with rate hikes
►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) but sterling is showing strength
►The Yen is now in a Break Out phase as investors remain risk averse and the Yen is usually considered the “safe” trade
►Resource-oriented currencies experienced losses last week relative to the USD despite firmer commodity prices
In general, FX volatility has increased substantially in the last couple of months
Commodities:
►Commodity indices continue in a Down Trend even as oil markets showed continued gains last week
►Grain prices have also continued their upward path from the lows of last summer
►Gold and Silver are in the Break Out phase as investors have flocked to them as a hedge against equity volatility
►However, we still view US Treasuries as the best hedging option for equity risk
This Coming Week:
►While risky assets recovered last week we still think that risk is being shunned at the moment
►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
►In general, investors seem very pessimistic making contrarian plays interesting from a tactical perspective
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ic J. Weigel
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