Markets in a Minute

Insights on the latest global investment news from our Chief Investment Officers, Omar Aguilar and Brett Wander.

January 15, 2019

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  • Equities:
    to hide in 2018

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies

    Cash was king in 2018

    Global equity and fixed income markets alike performed poorly in 2018, while cash was king. Major concerns about decelerating global economic growth, a flattening yield curve in the U.S., and expectations for tighter monetary policies by major central banks fueled one of the worst Decembers for risk-based assets since the 2008 financial crisis.

    An optimistic start to the New Year

    Global equity markets rebounded sharply in the final days of 2018 and first week of 2019, boosted by optimism over trade talks between the U.S. and China, and by growing evidence that the Fed is proceeding patiently regarding further interest rate hikes in the New Year. Recent U.S. economic data also helped, suggesting that the labor market remains solid, while consumer sentiment rose from November to December. In addition, oil prices surged more than 5% during this year’s first trading sessions, providing an optimistic start to 2019.

    The potential benefits of a solid defense

    In the current environment, we believe that a defensive strategy is likely to generate the best results. Higher-quality growth companies in Health Care, Technology, and Consumer Discretionary seem likely to outperform over the near-term. Looking internationally, emerging markets are benefiting from a weaker U.S. dollar, higher commodities prices, and attractive relative valuations.

  • Fixed Income: Bond returns, a few surprises

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    Treasury yields have been on the move—Finally

    Last year will be remembered for volatility finally returning to the financial markets. Despite falling 38 basis points (0.38%) in the final quarter of 2018, 10-year Treasury yields finished 28 basis points higher for the calendar year, marking the largest annual increase since 2013. Nevertheless, the negative impact from rising rates was generally cushioned by the corresponding increase in interest payments.

    Equity market mayhem

    Volatility certainly reared its head among equity markets in 2018. The CBOE VIX Index® spiked above 30 on two separate occasions last year, compared with a peak of 16 in 2017. Just as the market was regaining momentum at the end of the third quarter, worries surfaced. Slowing housing and manufacturing data, revenue warnings from global corporations, and geopolitical noise triggered a peak-to-trough drawdown of -20% for the S&P 500® Index, which finished the year with a -4.4% total return.

    Cash was king in 2018

    Amid the market turmoil, cash turned out to be one of the best places to invest in 2018. The Fed raised interest rates four times, pushing many short-term rates into the mid-2.0% range. The average 3-month Treasury-Bill yield was almost 1.95% last year, representing a relative safe harbor in otherwise stormy financial markets. This year promises more uncertainty as investors navigate a global economic slowdown and the Fed devises a new strategy to respond.