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MARKET MONITOR 
|
December 13

MARKET MONITOR

Chart of the Week


EQUITIES

Record prices and peak valuations have raised concerns over the outlook for stocks. In our view the key takeaways are: 1) valuation often normalizes through earnings and time, not price corrections, 2) free cash flow yield is an increasingly important metric as companies move to capital-light models, 3) low interest rates strengthen the equity opportunity set, and consequently, 4) investors should emphasize bottom-up positioning over pure beta.

Source: Goldman Sachs Global Investment Research and GSAM.

Market Summary


GLOBAL EQUITIES

The S&P 500 found its 28th record high of 2019 last week on the back of renewed optimism around a phase one US-China trade deal. With reports that the two countries reached a deal to avoid new tariffs in exchange for purchases of American agricultural products, the S&P 500 rose 0.77% on the week. In the UK, the FTSE 100 jumped 1.59% on Brexit clarity after Prime Minister Boris Johnson’s Conservative party won a sizable majority, thus clearing the way for the UK to leave the European Union in January. The Euro Stoxx 600 rose 1.15%. Read More

COMMODITIES

Oil markets finished up last week as the potential for a global growth pickup outweighed supply concerns: the International Energy Agency predicted a sharp rise in global inventories while the US Energy Information Administration reported declining winter demand. WTI and Brent Crude prices rose 1.47% and 1.29%, respectively. Read More

FIXED INCOME

Global sovereign debt had a mixed week amid progress towards the resolution of headline geopolitical issues. In the UK, 10-year Gilt yields rose to 0.79% on Brexit optimism following the UK general election. In the US, 2-year and 10-year Treasury yields ended 2 basis points (bps) and 4 bps lower respectively, as the Fed signal for a pause on rates was compounded by lingering uncertainties around the phase one trade deal. Read More

FX

The US dollar fell 0.62% against a basket of its peers last week, touching a four-month low after the Fed held interest rates steady last Wednesday. In the UK, the pound saw some volatility around the general election, surging over 2% against the US dollar after exit polls showed the Conservative party winning a large majority in Parliament. The pound pared its steep gains to end at $1.3340. Read More

Economic Summary


MONETARY POLICY

The FOMC held its target policy rate at 1.50%-1.75%. Fed officials presented a supportive economic backdrop, citing a healthy labor market, accommodative policy, and lack of persistent inflation. Officials provided future policy expectations: no hikes in 2020, and one hike both in 2021 and 2022. For the ECB, President Lagarde sent a balanced message in her first press conference. She noted increased confidence in the growth outlook but pointed to slow progress on inflation and signaled continuity on monetary policy, providing a broadly favorable assessment of negative rates. Read More

ELECTIONS

The Conservative party won a comfortable majority in UK Parliamentary elections, all but ensuring that Prime Minister Johnson’s Brexit deal will be ratified before the current Article 50 deadline expires on January 31, 2020. Although the Conservative party manifesto states that the UK will seek to agree to a new trade arrangement with the EU during the transition period, we think it is plausible for the transition period to be extended beyond December 2020 to allow for additional negotiation time. We continue to expect unchanged Bank of England policy next year. Read More

Style Performance


US Equity Size & Style Returns

MONTH-TO-DATE

Large
1.06%
0.83%
0.61%
Medium
0.83%
0.35%
-0.37%
Small
1.38%
0.90%
0.44%
Value
Core
Growth

YEAR-TO-DATE

Large
24.46%
28.80%
33.20%
Medium
24.34%
28.06%
33.41%
Small
19.89%
23.10%
26.15%
Value
Core
Growth

MSCI World Size & Style Returns

MONTH-TO-DATE

Large
1.68%
1.32%
0.94%
Medium
1.45%
0.91%
0.48%
Small
1.97%
1.38%
0.79%
Value
Core
Growth

YEAR-TO-DATE

Large
19.88%
25.49%
31.54%
Medium
21.46%
25.58%
28.58%
Small
20.02%
23.65%
27.27%
Value
Core
Growth

US Fixed Income Maturity and Quality Returns

MONTH-TO-DATE

Government
0.01%
-0.04%
-0.72%
Corporate
0.15%
0.23%
0.67%
High Yield
0.92%
1.08%
1.68%
Short
Intermed.
Long

YEAR-TO-DATE

Government
4.11%
5.22%
17.27%
Corporate
6.72%
9.92%
24.58%
High Yield
8.91%
12.92%
21.89%
Short
Intermed.
Long

European Fixed Income Maturity and Quality Returns

MONTH-TO-DATE

Government
0.04%
0.00%
-0.51%
Corporate
0.09%
0.27%
0.06%
High Yield
0.73%
??????
??????
Short
Intermed.
Long

YEAR-TO-DATE

Government
0.34%
4.65%
17.43%
Corporate
1.35%
7.75%
16.57%
High Yield
10.90%
??????
??????
Short
Intermed.
Long

Source: Bloomberg, Barclays and GSAM (as of 12/13/19)

VIEW LESS DISCLOSURE

Key Economic Releases


Monday, Dec 16

US Markit Manuf. PMI (Cons: 52.6, Prior: 52.6)
Euro Area Manuf. PMI (Cons: 47.3, Prior: 46.9)
UK Manuf. PMI (Cons: 49.5, Prior: 49.3)

Tuesday, Dec 17

US IP (Cons: 0.8%, Prior: -0.8%)

Wednesday, Dec 18

UK CPI MoM (Cons: 0.2%, Prior: -0.2%)

Thursday, Dec 19

BoE Bank Rate (Cons: 0.75%, Prior: 0.75%)

Friday, Dec 20

VIEW LESS DISCLOSURE

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