Global Tensions Ease, Markets Move Higher
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 1/10/2020. Rates and Economic Calendar Data from Bloomberg as of 1/10/2020. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets finished higher last week, with only a few exceptions. In the U.S., the S&P 500 Index rose to a level of 3,265, representing a gain of 0.98%, while the Russell Midcap Index gained 0.51%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -0.18% over the week. On the international equities front, developed markets finished slightly in the red returning -0.08%, while emerging markets finished up 0.88%. Finally, the 10-year U.S. Treasury yield was up slightly to 1.83%.
Early in the week, news outlets were focused on the escalating situation between the U.S. and Iran. As a result, investors moved into perceived “safe haven” assets while settling into a wait-and-see mindset. Fortunately, tensions de-escalated mid-week and markets moved higher. Oil prices also moved to lower levels following the initial, potentially excessive, increases that we previously discussed in last week’s update. Positive trade headlines once again helped the rally in stocks as it’s expected that a Chinese trade delegation will sign the “phase one” agreement in Washington this week. In addition, job numbers came in relatively strong, albeit below expectations, unemployment remained steady, and U.S. service sector activity expanded at a faster than expected pace.
Stylistic gains for the week are inline with what we experienced in 2019 and thus far in 2020. Growth continues to outperform Value, however, we believe a rotation is likely to take place over the course of 2020 and would encourage investors to be mindful of the potential move. We believe that a dovish Federal Reserve, along with the continued strength of the U.S. consumer and underlying U.S. economy, will allow for additional upside potential for U.S. stocks during the first half of 2020. However, the second half of the year may bring on a shift. In particular, as we enter the thick of the election cycle, periods of intermittent volatility will likely be based on changing predictions of who may be in the Oval Office and which political party may be in control of Congress after November 15. At that point, Value-oriented investment strategies, which have taken a back seat to Growth-oriented investment strategies over the last decade, should start to outperform.
In the week ahead, Financials kick-off earnings season, and a slate of geopolitical events and economic data releases will surely attract plenty of attention. As always, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
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