Market Outlook – January 2019

Executive Summary

• Selling accelerated in December as investors’ concerns regarding global slowing enveloped trading. Anxiety peak in response to Charmain Powell’s rate hike and press conference mid-month. The Fed chairman essentially put equity market investors on notice that the central bank no longer has investors’ backs. The end of a decade of easy money rocked the global equity market with US among the hardest hit.
• International equities fell sharply in December closing out a dismal year for foreign investing. A slowdown in China, a major trade customer to Europe, Japan and South Korea dented 2018 returns.
• Emerging market equities were the hardest hit asset class since it was caught between China’s slowing economy and US tightening liquidity. Both factors conspired to push EM equities down into the mid-teens. On a relative basis, both foreign developed and EM are not falling as much as the domestic equity market in the most recent quarter.
• Bond investing, at least high quality investing, benefited from the market maelstrom as interest rated edged lower for the month. Municipal bonds and foreign bonds ended the year in positive territory.
• High yield bonds plunged in response to tighter credit conditions, particularly in light of lower energy prices. It should be noted that the energy sector, including oil & gas and pipelines, comprises just under 15% of the US high yield bond universe.