EQUITY: US equities extended gains for a third straight month as the risk-on sentiment persisted throughout November. The positive news flow on trade discussions between the US and China as well as the Fed rate cut helped drive gains domestically. S&P 500 earnings season produced better than expected results with 75% of companies beating EPS estimates and 59% beating revenue estimates.
FIXED INCOME: US bond markets declined modestly during November, as the Bloomberg Barclays US Aggregate returned -0.05%. Treasury yields inched higher across the maturity spectrum. The spread between 10yr and 2yr US Treasury yields steepened to 18 basis points. The Fed appears content with current interest rate policy absent a material change in the economy.
ECONOMY: Consumer confidence and sentiment indicators continue to show strength in the face of increased trade tensions and slowing economic growth. Fed Chair Jerome Powell addressed recent developments involving trade negotiations as something they are closely monitoring. He emphasized that the Fed remains patient and will act appropriately to sustain the expansion and accomplish their dual mandate of maximum sustainable employment and price stability.
ECONOMY: US economic growth decelerated to close out 2018 and recent data points to a sluggish start to the year. US GDP expanded by 2.6% during Q4 2018, which is lower than the increase of 3.4% in Q3 2018. Economic data largely missed expectations in February as the Citi Economic Surprise Index declined to its lowest levels since 2017. Consumer sentiment, ISM manufacturing, and employment growth headlined the slowdown in data.
Global equities expanded their 2019 gains as February proved to be another solid month for risk assets. The S&P 1500 Index, a good representation of the US stock market, advanced 3.31% for the month. International stocks also moved higher with the MSCI All Country World Index ex US increasing 1.95%.
US Bonds exhibited mixed performance in February as the Barclays US Aggregate Bond Index declined 0.06% for the month. Treasury yields inched higher and traded in a narrow range during the month.
ECONOMY: The synchronized global expansion which was widely cheered heading into 2018 has instead been less consistent and more moderate than expected. Global economic metrics weakened during the fourth quarter contributing to increased volatility in financial markets. The Citi Economic Surprise Index, which measures actual published data versus expectations, closed the year in negative territory or below consensus expectations for several economic regions in the world. The less than robust economic data together with ongoing trade conflicts prompted the International Monetary Fund (IMF) to downgrade its global GDP growth forecast for 2019 from 3.9% to 3.7%, which is comparable to levels achieved in 2017 and 2018.
As the US economy approaches the tenth year of the current expansion, investors are increasingly focused on the possibility of a slowdown. After largely decoupling from the rest of the world with strong growth in the second and third quarters, US growth is projected to moderate in coming years.
ECONOMY: The prospect of slower global economic growth has contributed to elevated financial market volatility. Economic data remains supportive of further global expansion, but growth forecasts have been reduced as downside risks have increased. Tighter central bank monetary policy and restrictive trade policies have contributed to much of the uncertainty. In December, the Federal Open Market Committee (FOMC) increased short-term rates, while lowering their forecast for additional rate hikes in 2019. In addition, the FOMC projected US GDP growth to decline from a cycle high of 3.0% in 2018 to 2.3% in 2019.
EQUITY: Global equity markets posted significant losses in December placing several indices in bear-market territory, down 20% from all-time highs established earlier in the year. The S&P 500 Index declined 9.03% for the month and posted its first calendar year loss since 2008. International stocks fared better as a mean reversion trade narrowed the equity performance dispersion across global markets for the year. Large price declines across the board for equity markets coupled with strong earnings have reduced valuations to attractive levels. Investors are attempting to price in the moderation of global economic growth, continued trade tensions and more restrictive monetary policy.
FIXED INCOME: Slower global concerns combined with equity price volatility contributed to a flight to safety trade within fixed income markets. US bonds as measured by the Barclays US Aggregate Bond Index advanced 1.84% in December and finished the year essentially flat. Treasury bonds were the primary beneficiary of the risk-off trade as US government yields across the maturity spectrum fell. Investment grade corporate bonds lagged as spreads reached their widest levels since February 2016. Although credit fundamentals largely appear healthy, investor are now demanding higher premiums for exposure to similar credit risk as lower risk appetite translates to wider spreads.