What A Year This Month Has Been

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What A Year This Month Has Been

Today we’ll get a jump-start on the usual end-of-month performance analysis and recap how capital markets fared in January.

#1: Returns across broad asset classes year-to-date (best/worst return by subclass bolded):

Equities

  • S&P 500: +1.6%
  • S&P Mid Cap 400: -0.6%
  • Russell 2000: -1.2%
  • MSCI EAFE (non-US developed economies) Index: -1.2%
  • MSCI Emerging Markets: -4.2%
  • MSCI Frontier Markets: +1.2%

Fixed Income

  • 3-7 Year Treasuries: +1.5%
  • 7-10 Year Treasuries: +2.9%
  • +20 Year Treasuries: +6.7%
  • Investment grade US corporate bonds: +2.2%
  • High yield US corporate bonds: 0.0%
  • Non-US investment grade bonds: +1.8%
  • Emerging Market Bonds: +0.9%

Commodities/Currencies

  • Gold: +3.9%
  • Silver: 0.0%
  • Spot Crude Oil (WTI): -13.3%
  • DXY Dollar Index: +1.5%

Takeaway: we’re back to the 2019 market meme that you buy stocks for yield (the S&P pays 1.7% vs. 1.6% for 10-year Treasuries just now) and bonds for capital gains. That’s because the Wuhan coronavirus has tipped global investor sentiment back to worrying about recession, the same as trade war concerns last year.

#2: Returns by US large cap sector YTD (best/worst return bolded):

  • Technology (24% of the S&P 500): +6.9%
  • Health Care (14%): -0.7%
  • Financials (12%): -0.6%
  • Communications (11%): +2.2%
  • Consumer Discretionary (10%): -0.3%
  • Industrials (9%): +1.9%
  • Consumer Staples (7%): +1.5%
  • Energy (4%): -8.1%
  • Utilities (3%): +7.2%
  • Real Estate (3%): +2.9%
  • Materials: -4.1%

Takeaway: US Large cap Tech is the entire reason the S&P 500 has broken away in 2020 from both domestic small caps and international equities to post YTD positive returns. Apple alone is 32% of the S&P’s YTD gains, and Microsoft is 28%.

#3: US equity returns by investment style/market cap (better returns bolded):

  • S&P 500 Growth: +4.1%
  • S&P 500 Value: -0.9%
  • Russell 2000 Growth: +1.0%
  • Russell 2000 Value: -3.3%
  • Large Cap Momentum: +5.6%
  • Large Cap Min Vol: +3.6%
  • S&P 1500 Dividend Aristocrats: -1.0%

Takeaway: Tech’s runaway performance YTD meaningfully skews these numbers, making it look like generic “Growth/Momentum” is the hot ticket just now. The sector is 37% of Large Cap Growth, 17% of Small Cap Growth, and 26% of Momentum. All those are meaningful overweights from benchmark indices.

Bottom line to all this in 3 summary bullets:

  • All things considered, global risk assets have held up remarkably well even as the coronavirus has obviously spooked investors. A pullback after the rapid gains of Q4 2019 is not surprising.
  • The sharp rally in long-dated Treasuries this month has pushed the US yield curve back to recession-predicting territory. One month does not make a year, but it is hard to see global equities staging any sort of meaningful recovery without yields simultaneously rising as they did in Q4 2019.
  • US Large Cap Tech is the world’s safe haven equity investment at the moment. Even we, who have been recommending Tech since we started DataTrek over 2 years ago and still like the group today, find that remarkable. Such is the power of disruptive innovation, as we discussed in our Markets section.