We think you will find the following recent issues of Chartwell Review enlightening and entertaining. Chartwell has regularly published this quarterly review of the investment markets since 1994.
Unprecedented is the often-used word to describe what society, economies, and markets were plunged into with the spread of the coronavirus. As the quarter began, we were 11 years into a bull market and wondering how long that bull would/could run, and what the likely catalyst for change might be. A global pandemic was not on anyone’s radar screen. When the concept took hold in mid-February, stock markets plunged. US equity markets experienced their swiftest fall from peak to troughever; the S&P500 fell -35% in just 22 days. The swiftest ever descent from bull to bear market was not the only unprecedented event in 1Q20, no economy or asset class was spared. Clients reviewing the performance of their core bond strategies in 1Q20 might be surprised by the challenges those portfolios faced in meeting or exceeding the Bloomberg Barclays US Aggregate Bond Index, the bellwether core bond index. Our Back Page Perspectives examines the factors that drove that disparity.
Year-end 2019 brought a close to a strong quarter, year and decade of performance – extraordinary for many asset classes. In our Chartwell Review, we take a look at where stock and bond markets finished the quarter/year/decade, where valuations and interest rates stand, and factors that may impact markets in 2020. For those that track market performance through a presidential cycle, health-care and technology stocks typically suffer their worst performance of the 4-year election cycle in the presidential election year. Financials, energy and utilities – all value and defensive sectors, have had their best average performance in presidential election years.
Market volatility continued to be the theme in global markets, with equity and bond markets sending out mixed signals of strength and weakness. You can back up any position you’d like with observable data, which makes it very difficult to chart the right course. One common factor essential to future investment success across all asset classes is growth – global economic growth, earnings growth, labor and wage growth, etc. In our Review, we look into what’s “got growth.” The US yield curve has had bouts of being inverted this year. On our Back Page Perspectives, we examine the topic of inverted yield curves and whether they are good predictors of recessions or market downturns.
The rally in global risk assets has been sharp over the past quarter. June was one of those months you can summarize in two words: everything up! Most assets -- from risky equities and bonds, to safe-haven assets such as gold and Treasuries -- rallied sharply, reflecting market dynamics that are typical of an environment in which global central banks show their big guns. The Fed is likely to cut rates at its next Federal Open Market Committee (FOMC) meeting, despite a benign G20 outcome and recent strong employment numbers. The ECB has also opened the door for cutting rates further into negative territory and restarting QE – clear positives for global risk assets. Markets are heating up, and there are a few areas of bubbles developing. The two most notable ones are near record high valuations of US large-cap growth stocks and very low credit spreads for high-yield bonds, both here and in Europe. We would not be surprised to see pedestrian returns from markets through the rest of 2019, with high volatility.
A number of notable events took place in the first quarter of 2019: the 10th anniversary of the stock market’s recovery from the global financial crisis, the Federal Reserve halting further interest rate hikes for an undefined period, and the strong global rebound for markets from a weak 4Q19 and 2018. Markets moved from a year where no asset class worked to everything working in 1Q19 – global stocks and bonds, commodities, real estate. The Federal Reserve went “on hold” in 1Q19, but volatility in investment markets did not. Hold on – as there are many signs pointing to ongoing market volatility!
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