The Navigator | February 2020 While the first weeks of the year saw equities continue the same positive trend of Read More
January 1, 2019 |
What happened in December?
Stocks traded in a series of volatile sessions throughout the holiday season and finished the month in negative territory. Investors continued to weigh the possible impacts of slowing global growth, geopolitical trade disputes and the partial U.S. government shutdown.
Major U.S. indices such as the S&P 500 and Dow Jones Industrial Average suffered their worst Decembers since 2008. The technology-heavy NASDAQ composite fell into bear market territory on 12/21 declining over -20% off its high in late August. The previously high-flying tech sector has taken the brunt of this market downturn as investors shed the risk associated with this expensive sector.
The Federal Reserve raised the target interest rate by 0.25% at their December meeting. Though the move was expected, the increase continues to push interest rates higher, which typically lead to higher consumer and business lending rates, escalating concerns of slowing future economic growth. Though not enough to erase the monthly and yearly losses, stocks moved higher in the final week of the year. Along with possible progress in China-U.S. trade talks, investors took advantage of the recent volatility by picking up discounted stocks hit hard by the pullback.
Moving into January
There are likely to be some updates concerning the U.S. and China trade dispute following the G20 summit but a resolution in any form is unlikely to come before the end of the year. News concerning progress or setbacks will certainly move the U.S. and international markets in the short-term. The Federal Reserve policy announcement in December will also shed some light on the current state of the U.S. economy and the central bank’s outlook for additional hikes. We decreased exposure in our domestic and international equity strategies throughout November amidst the volatile market action and uncertain outlook. The strategies sit at approximately 70% invested in a neutral position that we believe to be suited to handle the volatility and take advantage of opportunities as they arise.
↔ Valuation | Equity valuations (S&P 500 P/E multiples) declined to 17.1 with Forward P/E to 15.4, their lowest levels in over a year. Rising interest rates presented competitive opportunities as investors seek higher yield in new bond offerings.
↔ Sentiment | Investment flows into U.S. index fund SPY were slightly negative. AAII investor survey (a contrarian indicator) saw a major increase in bear market sentiment, up to 50.3 from 39.5 last month.
↓ Technical | The S&P 500 Index declined through traditional support levels as the 50-day, 100-day and 200-day moving averages are -6%, -9% and -9%, respectively. The VIX (volatility) increased to its highest level in 2018 to 25.4.
↑ Macroeconomic | Unemployment rate remained at multi-year low of 3.7%, while the economy continued to add jobs, +155,000 in November. Industrial production rose 0.6% in November. Wage growth (average hourly earnings) increased 3.1% over the previous year.
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As of 12/31/2018. Data provided by Bloomberg, NorthCoast Asset Management.
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