January – February 2019

U.S. Economic and Market Highlights

The Economy:

  • U.S. economic growth slowed to a, more moderate, annualized rate of 2.6% in the final quarter of 2018 following two quarters of growth above 3.0%. This was better than economists’ consensus estimate of 2.2%. Other countries outside the U.S. including: Brazil, Mexico, and Canada also reported slower fourth quarter economic growth.
  • Even though economic growth grew faster than expected in the fourthquarter, economic data from the U.S. housing, retail, and manufacturing sectors weakened.The reversal in positive sentiment is likely related to policy shifts by central banks around the world, including the Fed, in anticipation of slowing economic growth in the coming year.
  • U.S. headline CPI – consumer prices were unchanged in January at 1.9%, held down by cheaper gasoline prices, which offset increases in the cost of food, rents and medical expenses. Most economic data reports support the Fed’s current “wait and see” approach to monetary policy, suggesting that inflation pressures remain subdued.

Equities:

  • The S&P 500, S&P 400 and Russell 2000 each recorded their best January performance since 1987 with returns of 8.0%, 10.8% and 11.2%, respectively, following the S&P 500’s worst month since 2009 and worst December since 1931.
  • Non-U.S. equities experienced a strong rebound in January as well, including the MSCI EAFE’s ex. U.S. which had a 7.6% return and MSCI Emerging Markets index which rose 8.8%.
  • Investors’ recent appetite for riskier assets was driven by strong fourth quarter corporate earnings, signals from the U.S. Fed that further interest rate increases are likely on hold, optimism for trade talks between the U.S. and China, and new Chinese stimulus.
  • Year-over-year corporate earnings growth is on pace for a slight deceleration. But, analysts are forecasting a more significant deceleration of earnings growth for the full year of 2019 to single-digit levels, down from above 20% the last three consecutive quarters.

Fixed Income:

  • At year-end, investment grade and high yield corporate bonds lost market value as spreads hit a two-year highs. This reversed in early January, as the stock market rebounded and prices on corporate bonds rose throughout January and February.
  • Emerging market bonds, which struggled in 2018, recovered in January 2019 as many investors cited potential dollar weakness as a possible catalyst. While there might be some value in the short-term, dollar weakness seems uncertain as other central banks grapple with their slowing economies.

Other:

  • The geopolitical environment has led to increased levels of uncertainty, contributing to slowed momentum and sentiment. Brexit is scheduled for March 29, 2019 and UK leadership is still in gridlock.
  • Private equity continues to provide attractive investment opportunities for institutional investors due to their expanding universe of investment options, active ownership, and lower valuation multiples vs. comparable public companies.

The above was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.

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