It’s Growth Over Value Again

Global equities once again out-performed bonds over the last 5 trading days
US Large Cap Equities outperformed Developed Market International Equities
EM equities, while on a downtrend, recovered somewhat last week (up 0.96%) but remain down 7% for the year
The recovery of EM as an asset class depends massively on what direction Chinese stocks take, but contagion concerns from the Turkish Lira and Argentinian Peso have increased significantly
Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
Growth keeps outperforming Value in the US as well as in International markets
In the US last week was all about growth and momentum
There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone. We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

Countries & Region:

Good week all around for global equities with Australia having recovered from last week’s loss
Among sub-asset classes, US Large Cap and Developed International performed the best
Equities once gain beat bonds by a handy margin last week
Growth outperformed Value over the last 5 trading days
- Traditional Value sectors such as Staples and Telecom suffered losses
- Tech has regained its mojo along with Consumer Discretionary
Energy stocks keep recovering – tensions in the Strait of Hormuz will provide further support for oil prices

In the US, mega-caps outperformed
Value once again under-performed Growth – a big portion of this differential is due to sector concentration differences
Growth and Momentum keep dominating among US stocks
Asian Developed markets (mostly Japan) propelled the MSCI EAFE to a 1.5% return
EM LATAM continues to struggle with Argentina becoming a concern (never mind Venezuela)

Risk Aversion continues to surprise on the downside – maybe old historical metrics don’t apply anymore? We don’t agree!
The bull market in US stocks remains intact with growth out-performing value – we don’t see anything that is going to change this dynamic
Tariff wars do not seem to have much of an effect on US stocks – will this persist? I
Is small cap outperformance about tariff “protection” or something else. We think that it is mostly about momentum
Will EM equities recover? Seems to be all about the direction of the US dollar at the moment with Argentina and Turkey inflicting further damage
Are Chinese equities going to further lose ground or is this temporary? Is the downtrend due to tariffs or domestic growth issues?
Not much in the way of important earnings in the US

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Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

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Global equities out-performed bonds over the last 5 trading days but the big story is the effect of the US Dollar on international asset class performance
EM equities, while on a downtrend, recovered somewhat last week (up 2.6%) but remain down 8% for the year
The recovery of EM as an asset class depends massively on what direction Chinese stocks take – China carries a 30% weight in the MSCI EM index
Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
Growth keeps outperforming Value in the US, but last week the margin was only 10 bp for the Russell 3000
In the US last week was all about market cap – the smaller the cap the better
There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone. We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

Good week all around with Australia being the only down market
China recovered nicely but remains in a downtrend for the year
EM equities have been on a downtrend this year but got a reprieve last week – up 2.6%
Lower beta sectors under-performed last week giving up some of the gains from the previous week
Energy stocks keep getting whipsawed but had the best weekly performance – up 2.5%

In the US, small cap won big last week while low vol and yield strategies under-performed
Value and Growth had inline performance but YTD the gap remains quite wide in favor of Growth
EM and International Developed equities out-performed US strategies – big US dollar effect
EM LATAM continues to struggle with Argentina becoming a concern (never mind Venezuela)

Risk Aversion – expect the RAI to jump into the Neutral Zone
- Investors keep under-pricing risk
Will US stocks keep leaping ahead of the rest of the world? Is this just dependent on the USD?
Tariff wars do not seem to have much of an effect on US stocks – will this persist even as Trade negotiations stall?
Will EM equities recover? Seems to be all about the direction of China and the the US dollar at the moment
Are Chinese equities going to further lose ground or is this temporary? Is the down trend due to tariffs or domestic growth issues?