Market Review – January 2019

 In Financial

Market Review – January 2019 

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.