December 2018 - Monthly Market Commentary

December was a difficult month for global risk assets. Developed market equities sold off sharply, emerging market equities outperformed significantly, though were also lower, credit spreads widened, the USD weakened, the oil complex retreated, gold moved higher, and the US interest rate curve flattened and rates declined, except at the very short end. The Federal Reserve increased interest rates for the fourth time in 2018 (and the ninth time since 2015), bringing its benchmark federal funds rate to a range between 2.25% and 2.5%. As forecasted, the ECB’s bond purchase program ended in December, although it will continue to reinvest cash from maturing bonds; the ECB confirmed plans to raise rates in the second half of 2019 and forecasted 2019 euro area GDP growth of 1.7%. The US job report showed that 155,000 non-farm jobs were added in November (the 98th consecutive month of job creation), the unemployment rate held at 3.7% (a 49 year low), the labor force participation rate remained at 62.9%, and average hourly earnings rose 3.1% from a year earlier.

Notable corporate transactions announced in December included the $4.1 billion acquisition of Tribune Media by Nexstar, the $476 million purchase of Jack Wolfskin by Callaway Golf, the $5.1 billion acquisition of Tesaro by GlaxoSmithKine, the $1.8 billion purchase of the remaining components of its IBM’s Lotus business by HCL, the $6.4 billion acquisition of ABB’s power grids business by Hitachi, the $3.7 billion sale of Antelliq to Merck, the $3.2 billion purchase of Belmond by LVMH, the $660 million acquisition of Luxtera by Cisco, the merger of the consumer healthcare units of Pfizer and GlaxoSmithKine, the $275 million acquisition of BuildingConnected by Autodesk, the $1.2 billion purchase of KMD by NEC, Vista Equity’s $1.2 billion purchase of Mindbody, Greif’s $1.8 billion acquisition of Caraustar Industries, Altria’s $12.8 billion purchase of a 35% stake in Juul Labs, Zynga’s $700 million acquisition of a majority stake in Small Giant Games, the $905 million purchase of Pioneer by Baring Private Equity, the $1.8 billion purchase of a 45% stake in Cronos by Altria, the $4.4 billion acquisition of Travelport by Siris Capital and Elliot Management, Tivity Health’s $1.3 billion purchase of Nutrisystem, the $1.9 billion sale of Trade Me to Apax Partners, the $5 billion acquisition of StandardAero by Carlyle, and the $1.4 billion purchase of Civitas Solutions by Centerbridge Partners.
Developed market equities mostly fell in December (see page 8), with gains in Australia (+0.4%) and Hong Kong (+0.1%), and the biggest losses in Japan (-9.8%), the US (S&P 500, -9.1%), and Germany (-6.7%). US large caps outperformed small caps, with the Russell 1000 down 9.1% and the Russell 2000 down 11.9% (see page 3). Utilities (-4%), Materials (-6.9%), and Communication Services (-7.3%) were the best performing sectors in December; Energy (-12.7%), Financials (-11.3%), and Industrials (-10.7%) were the worst performing sectors (see page 2). Large cap value (-9.6%) underperformed large cap growth (-8.6%) in December (see page 3). Emerging market equities were mostly lower in December (see page 9), with the largest gains in the Philippines (+1.8%), Indonesia (+1.4%), and Malaysia (+0.4%), and the largest losses in China (-6%), Argentina (-4.8%), and Thailand (-3.9%).

In currencies, the USD Index was lower (-1.1%) in December (see page 10). The Japanese Yen (+3.5%), Swedish Krona (+2.8%), and Swiss Franc (+1.7%) had the largest gain against the USD, while the Australian Dollar (-3.5%), Canadian Dollar (-2.5%), and New Zealand Dollar (-2.2%) had the largest losses. Emerging market currencies were mixed against the USD, with the largest gains in the Mexican Peso (+3.8%), Thai Baht (+2%), and Chinese Yuan (+1.2%), and the largest losses in the South African Rand (-3.5%), Russian Ruble (-3.1%), and Turkish Lira (-1.4%).

The US interest rate curve flattened in December (see page 12). 10 year rates closed the month at 2.68%, down from 2.99% at November month end. US investment grade and high yield spreads widened in December (see page 13).

In commodities, the GSCI index was down 7.8% in December (see page 11), with losses in Energy (-11.7%), Industrial Metals (-4.2%), Agriculture (-2.4%), and Livestock (-0.6%), and gains in Precious Metals (+5.2%). Within individual commodities, Cocoa (+9.9%), Silver (+9.5%), and Palladium (+4.8%) saw the biggest gains, while Natural Gas (-34.2%), Crude Oil (-11%), and Lean Hogs (-9.5%) saw the biggest losses. Gold was up 4.7% for the month.

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Year End 2018

Two thousand and eighteen, come and gone so fast,

Turn the page in a few weeks, put it firmly in the past.

The days are growing shorter, the nights are getting colder,

As fall turns into winter, another year we all are older.

Put your politics aside, for a moment let’s be civil,

If you watch CNN or Fox, forget about all that drivel.

To this year’s beginning, let’s re-wind back the clock,

We’ll look at it holistically, not on a basis that’s ad hoc.

News there was aplenty, stories of people very brave,

A Thai soccer team and coach, rescued from a flooded cave.

Winter in PyeongChang, we saw the Olympic flame ignited,

And the South and North Koreans, marching with one flag united.

A Windsor Castle wedding, how those British royals sparkle,

The Duke and Duchess of Sussex, Prince Harry and Meghan Markle.

At his confirmation hearings, Kavanaugh faced some strong objections,

The Dems took back the House, in November’s midterm elections.

Farewell to Steven Hawking, Godspeed to John McCain,

Respect to Aretha Franklin, good eats to Anthony Bourdain.

The rich and famous lifestyles, did show us Robin Leach,

The evangelist Billy Graham, he sure knew how to preach.

George and Barbara Bush, a classy couple he and she,

A fond goodbye to Burt Reynolds, so long now to Stan Lee.

The most gruesome death this year, Khashoggi we do remember,

For whom a hit squad was dispatched, to murder and dismember.

A fourth term coronation for Putin, Xi’s now emperor for life,

Genocide in Burma, in Syria endless strife.

A June summit down in Singapore, Trump and Kim Jong-Un,

Raising hopes for a de-nuking, assuming you trust that pudgy goon.

A duck boat disaster in July, California fires in a recurring cycle,

Tragedies in Florida, the Parkland shooting and Hurricane Michael.

A former Russian spy in England, poisoned but still alive,

Great progress down in Saudi, where the women now can drive.

A caravan of migrants, heading northward towards the border,

So Trump dispatched the troops, vowing to keep the law and order.

China’s modifying the genes of babies, opening Pandora’s box,

In Boston they’re still cheering, the triumph of their Red Sox.

The Eagles flew and flew, and seized a rare victory dance,

At the World Cup in Russia, the trophy went to France.

The Warriors won in four, beating Cleveland in a hurry,

Even mighty LeBron was no match, for Durant and Curry.

Mueller’s investigation moves apace, slowly tightening the noose,

Seems he’s angling for bigger fish, and unwilling to call a truce.

White House turnover continues, it’s stormy near the throne,

Hope Hicks resigned in Feb, followed in March by Gary Cohn.

Rex Tillerson was fired, these shifts seem almost daily,

McCabe and McMaster, and don’t forget about Nikki Haley.

We’re told it’s no big deal, please don’t get the wrong impressions,

John Kelly’s out as well, following in the footsteps of Jeff Sessions.

This year in the markets, to almost nowhere could you flee,

It mattered not if you were in, fixed income, gold, or equity.

Two issues were to blame, which caused all this bloodshed,

One was the Chinese tariffs, the other was the Fed.

Two stocks were worth a trillion, the Amazon and the Apple,

For redemption from that greed, we’re now praying in the chapel.

Many charts are off the peak, so much it makes you holler,

The only things that have gone up, are volatility and the dollar.

So what awaits us all next year, in this uncertain future,

How to stop this sudden bleeding, and give our wounds a suture?

Perhaps reset your expectations, to a lower notch than outright brash,

It’s not time for crazy leverage, you’re not a fool to hold some cash.

The QE is unwinding, there’s no prior roadmap for this journey,

Before it’s over rest assured, some will be rolled out on a gurney.

Prepare to take more off the table, if risk assets make another rally,

You’ll be glad you did before, this pullback makes its grand finale.

But enough with gloom and doom, in this annual search for clarity,

Let’s count our many blessings, in this season of hope and charity.

If your tower’s Trump or made of ivory, let’s stop the nasty tweets,

And work to bridge our differences, and share some holiday treats.

Though we disagree quite often, consensus we must reach,

Whether you’re in the camp of one more term, or the one of let’s impeach.

Let’s take a year end break, from trade wars and yield curve kinks.

Look up now from your smartphone, and enjoy some New Year’s drinks.

November 2018 - Monthly Market Commentary

November was a mixed month for global risk assets. Developed and emerging market equities mostly rebounded, credit spreads widened, the USD was little changed, the oil complex sold off sharply, natural gas spiked higher, and the US interest rate curve flattened. The Federal Reserve kept rates unchanged at its November meeting; minutes from the meeting pointed to a rate increase in December, but greater uncertainty about the future pace of quarterly rate hikes. Comments by Chairman Powell late in the month regarding rates being “just below” neutral sparked a sharp rally in risk assets. The US job report showed that 250,000 non-farm jobs were added in October (the 97th consecutive month of job creation), the unemployment rate held at 3.7% (a 49 year low), the labor force participation rate increased to 62.9%, and average hourly earnings rose 3.1% from a year earlier.

Notable corporate transactions announced in November included the $3.2 billion acquisition of Finisar by II-VI, the $8 billion purchase of Qualtrics by SAP, the $5.5 billion acquisition of Athenahealth by Veritas Capital and Evergreen Coast Capital, the $1.4 billion purchase of Cylance by BlackBerry, the $4.2 billion acquisition of BTG by Boston Scientific, the $700 million sale of GameStop’s mobile unit to Prime Communications, the $1 billion purchase of ITG by Virtu Financial, the $1.2 billion acquisition of Kraft’s Canadian natural cheese business by Parmalat, the $7.4 billion purchase of Arris by CommScope, the $594 million acquisition of Bojangles by Durational Capital and The Jordan Company, the $1.9 billion purchase of ConvergeOne by CVC, ResMed’s $750 million purchase of MatrixCare, Vista Equity’s $1.9 billion acquisition of Apptio, Sazerac’s $550 million purchase of 19 alcohol brands from Diageo, Pan American Silver’s $1 billion acquisition of Tahoe Resources, the $1.2 billion purchase of Spectrum Brands’ auto care business by Energizer, the $3.2 billion purchase of DJO Global by Colfax, Cimarex’s $1.6 billion acquisition of Resolute Energy, Johnson Controls’ sale of its power solutions business to Brookfield, Newell Brand’s $2.5 billion sale of Pure Fishing to Sycamore Partners and Jostens to Platinum Equity, the $950 million sale of Veracode to Thoma Bravo, the $655 million acquisition of Sonneborn by HollyFrontier, and the $875 million purchase of PlanGrid by Autodesk.

Developed market equities rose in November (see page 8), with the biggest gains in Hong Kong (+7.2%), the US (S&P 500, +2%), and Spain (+1.9%), and the largest losses in Australia (-2.3%), Germany (-2%), and France (-1.7%). US large caps outperformed small caps, with the Russell 1000 up 2% and the Russell 2000 up 1.6% (see page 3). Healthcare (+7.1%), Real Estate (+5.6%), and Materials (+4%) were the best performing sectors in November; IT (-1.9%), Energy (-1.6%), and Communication Services (-0.7%) were the worst performing sectors (see page 2). Large cap value (+3%) outperformed large cap growth (+1.1%) in November (see page 3). Emerging market equities were mostly higher in November (see page 9), with the largest gains in China (+7.2%), Argentina (+5.6%), and Indonesia (+5.6%), and the largest losses in Mexico (-4.4%), Taiwan (-1.2%), and Thailand (-1.1%).

In currencies, the USD Index was little changes (+0.1%) in November (see page 10). The New Zealand Dollar (+5.4%), Australian Dollar (+3.3%), and Swiss Franc (+1%) had the largest gain against the USD, while the Norwegian Krone (-1.9%), Canadian Dollar (-1%), and Japanese Yen (-0.5%) had the largest losses. Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+7.1%), South African Rand (+6.5%), and Indian Rupee (+6.1%), and the largest losses in the Brazilian Real (-3.7%), Russian Ruble (-1.8%), and Mexican Peso (-0.3%).

The US interest rate curve flattened in November (see page 12). 10 year rates closed the month at 2.99%, down from 3.14% at October month end. US investment grade and high yield spreads widened in November (see page 13).

In commodities, the GSCI index was down 11.3% in November (see page 11), with losses in Energy (-17.9%), and gains in Industrial Metals (+2%), Livestock (+1.5%), Agriculture (+0.7%) and Precious Metals (+0.4%). Within individual commodities, Natural Gas (+41.1%), Palladium (+7.8%), and Lean Hogs (+6.7%) saw the biggest gains, while Crude Oil (-22.1%), Brent Crude (-20.9%), and Gasoline (-19.3%) saw the biggest losses. Gold was up 0.6% for the month.

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October 2018 - Monthly Market Commentary

October was a difficult month for global risk assets. Developed and emerging market equities moved sharply lower, credit spreads widened, the USD strengthened, the oil complex sold off, and the US interest rate curve shifted higher. Minutes from the September Federal Reserve meeting pointed to continued, gradual increases in interest rates. Q3 economic growth in China slowed to 6.5%, below expectations, and at the slowest rate since the first quarter of 2009. The ECB took no action on interest rates at its October meeting, and confirmed that it remains on track to end its quantitative easing program by year end. The US job report showed that 134,000 non-farm jobs were added in September (the 96th consecutive month of job creation), the unemployment rate fell to 3.7%, the labor force participation rate remained at 62.7%, and average hourly earnings rose 2.8% from a year earlier.

Notable corporate transactions announced in October included the $794 million acquisition of Trinidad Drilling by Precision Drilling, the $493 million purchase of Transnom by Honeywell, the $2.2 billion merger of Sahara Petrochemicals and Saudi International Petrochemical, the $1.7 billion purchase of Unifrax by Clearlake Capital, the $5.2 billion merger of Cloudera and Hortonworks, the $17 billion merger of the Saudi British Bank and Alawwal Bank, the $345 million purchase of United Flexible by Smiths, the $550 million acquisition of Softvision by Cognizant, the $2.4 billion merger of Ensco and Rowan, Orsted’s $510 million purchase of Deepwater Wind, the $2.2 billion sale of HIG Capital’s stake in FNZ to Caisse de Depot and Generation Investment Management, the $2 billion acquisition of Rocket Software by Bain Capital, the $4 billion purchase of Esterline Technologies by TransDigm, the $2.1 billion purchase of Imperva by Thoma Bravo, GFL’s $2.8 billion purchase of Waste Industries, the $33 billion merger of Harris Corp. and L3 Technologies, the $1.1 billion purchase of NEC by Blackstone, Twilio’s $2 billion purchase of SendGrid, the $1.1 billion purchase of Greencore by Hearthside, the $2.1 billion purchase of Endocyte by Novartis, the $5.7 billion sale of OppenheimerFunds to Invesco, the $1.9 billion purchase of Shell’s Danish upstream business by Norwegian Energy, Micron’s $1.5 billion acquisition of Intel’s stake in their joint venture, the $7.1 billion purchase of Fiat Chrysler’s car parts unit by KKR, the $2 billion acquisition of Ci:z by Johnson & Johnson, Aqua America’s $4.3 billion purchase of Peoples, Clearlake Capital’s $550 million acquisition of Symplr, the $3.6 billion purchase of Nexperia by Wingtech Technology, Aptiv’s $650 million acquisition of Winchester, IBM’s $34 billion purchase of Red Hat, and the $6.8 billion purchase of Essar Steel by ArcelorMittal and Nippon Steel.

Developed market equities were lower in October (see page 8), with the smallest losses in Spain (-4.5%), UK (-4.8%), and Europe (-5.4%), and the largest losses in Hong Kong (-11.0%), Japan (-9.0%), and France (-7.1%). US large caps outperformed small caps, with the Russell 1000 down 7.1% and the Russell 2000 down 10.9% (see page 3). Consumer Staples (+2.3%), Utilities (+2.0%), and Real Estate (-1.7%) were the best performing sectors in October; Consumer Discretionary (-11.3%), Energy (-11.3%), and Industrials (-10.8%) were the worst performing sectors (see page 2). Large cap value (-5.2%) outperformed large cap growth (-8.9%) in October (see page 3). Emerging market equities were mostly lower in October (see page 9), with the largest losses in Korea (-12.0%), China (-11.3%), and Taiwan (-10.6%), and gains in Brazil (+9.6%).

In currencies, the USD Index was up 2.1% in October (see page 10). The Japanese Yen (+0.6%) had the largest gain against the USD, while the Norwegian Krone (-3.4%) and Swedish Krona (-3.0%) had the largest losses. Emerging market currencies were mixed against the USD, with the largest gains in the Brazilian Real (8.8%) and Turkish Lira (+8.4%), and the largest losses in the Mexican Peso (-8.0%), South African Rand (-4.3%), and Korean Won (-2.8%).

The US interest rate curve shifted higher in October (see page 12). 10 year rates closed the month at 3.14%, up from 3.06% at September month end. US investment grade and high yield spreads widened in October (see page 13).

In commodities, the GSCI index was down 5.8% in October (see page 11), with losses in Energy (-8.4%), Industrial Metals (-4.9%), and Livestock (-0.9%) and gains in Agriculture (+2.3%) and Precious Metals (+1.3%). Within individual commodities, Sugar (+18.0%), Coffee (+10.2%), and Cocoa (+8.8%) saw the biggest gains, while Gasoline (-15.7%), Crude Oil (-10.5%), and Brent Crude (-8.7%) saw the biggest losses. Gold was up 1.8% for the month.

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September 2018 - Monthly Market Commentary

September was a mixed month for global risk assets.  Developed and emerging market equities were mixed, the USD was little changed, the oil complex moved higher, the US interest rate curve shifted higher, and US corporate credit spreads were little changed.  The Federal Reserve raised its key interest rate at its September meeting, raised its economic growth forecasts for 2019, and removed the term “accommodative” from the characterization of its policy.  The ECB left interest rates unchanged at its September meeting, and confirmed its earlier guidance regarding the wind down of its quantitative easing program.  The US job report showed that 201,000 non-farm jobs were added in August (the 95th consecutive month of job creation), the unemployment rate remained at 3.9%, the labor force participation rate dropped slightly to 62.7%, and average hourly earnings rose 2.9% from a year earlier. 

Notable corporate transactions announced in September included the $1 billion acquisition of part of Novartis’ generic drugs business to Aurobindo Pharma, the $1.1 billion purchase of Episerver by Insight Venture Partners, the $1.4 acquisition of Nevsun Resources by Zijin Mining, the $900 million purchase of Caprock by EagleClaw Midstream, the $1.5 billion acquisition of Intralinks by Siris Capital, Boston Scientific’s $600 million purchase of Augmenix, the $6.7 billion purchase of IDT by Renesas, the $2.5 billion acquisition of Engility by SAIC, the $2.1 billion purchase of BlueLine Rental by United Rentals, Hershey’s $420 million purchase of Pirate Brands, the $6.7 billion purchase of a majority of Sedgwick by Carlyle, the $1.6 billion acquisition of Gerber Life Insurance by Western & Southern Financial, the $645 million purchase of MMI by a group led by Cybernaut Investment, the $6.4 billion purchase of Jardine Lloyd Thompson by Marsh & McLennan, Adobe’s $4.8 billion purchase of Marketo, the $6 billion acquisition of Randgold Resources by Barrick Gold, the $3.5 billion purchase of Pandora by Sirius XM, Medtronic’s $1.6 billion purchase of Mazor Robotics, the $2.3 billion purchase of Sonic by Inspire Brands, the $1.8 billion purchase of Ascenty by Digital Realty, the $15 billion sale of 21^st Century Fox’s stake in Sky to Comcast as part of Comcast’s $39 billion winning bid for Sky, the $3 billion purchase of a majority stake in United Group by BC Partners, the $933 million acquisition of XO Group by WeddingWire, the $2.1 billion purchase of Versace by Michael Kors, the $950 million acquisition of Chaucer by China Reinsurance, ST Engineering’s $630 million purchase of MRA Systems from GE, and Transocean’s $2.7 billion acquisition of Ocean Rig UDW.

Developed market equities were mixed in September (see page 8), with gains in Japan (+5.5%), Italy (+2.2%), and the UK (+1.4%), and the largest losses in Germany (-1.5%), Australia (-1.4%), and Canada (-1%).  US large caps outperformed small caps, with the Russell 1000 up 0.4% and the Russell 2000 down 2.4% (see page 3).  Communication Services (+4.3%), Health Care (+2.9%), and Energy (+2.6%) were the best performing sectors in September; Real Estate (-2.6%), Financials (-2.2%), and Materials (-2.1%) were the worst performing sectors (see page 2).  Large cap growth (+0.6%) outperformed large cap value (+0.2%) in September (see page 3).  Emerging market equities were mixed in September (see page 9), with the largest gains in Russia (+7.2%), Argentina (+4.3%), and Brazil (+3.7%), and the largest losses in the Philippines (-7.4%), India (-7.1%), and China (-1.6%). 

In currencies, the USD Index was flat in September (see page 10).  The Norwegian Krone (+2.9%), Swedish Krona (+2.9%), and Canadian Dollar (+1%) had the largest gains against the USD, while the Japanese Yen (-2.3%) and Swiss Franc (-1.3%) had the largest losses.  Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+8.2%), South African Rand (+3.9%), and Russian Ruble (+2.8%), and the largest losses in the Indian Rupee (-2.4%), Chinese Yuan  (-0.6%), and Indonesian Rupiah (-0.6%).

The US interest rate curve shifted higher in September (see page 12).  10 year rates closed the month at 3.06%, up from 2.86% at August month end.  US investment grade and high yield spreads were little changed in September (see page 13).

In commodities, the GSCI index was up 3.9% in September (see page 11), with gains in Livestock (+7.8%), Energy (+5.9%), and Industrial Metals (+1.4%) and losses in Agriculture (-3.6%) and Precious Metals (-0.5%).  Within individual commodities, Lean Hogs (+15.1%), Palladium (+10.8%), and Brent Crude (+7.4%) saw the biggest gains, while Cocoa (-11.8%), Cotton (-7%), and Wheat (-6.5%) saw the biggest losses.  Gold was down 0.7% for the month.

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August 2018 - Monthly Market Commentary

August was a mixed month for global risk assets. Developed and emerging market equities were mixed, with US and growth outperformance, the USD strengthened, especially versus EM currencies, the US interest rate curve flattened, US corporate credit spreads were little changed, and the oil complex moved higher. The Federal Reserve left interest rates unchanged at its August meeting, but indicated that “economic activity has been rising at a strong rate” and that another interest rate increase was likely in September. The Bank of England raised its benchmark rate to 0.75%, the highest level since 2009. The US job report showed that 157,000 non-farm jobs were added in June (the 94th consecutive month of job creation), the unemployment rate decreased to 3.9%, the labor force participation rate held at 62.9%, and average hourly earnings rose 2.7% from a year earlier.

Notable corporate transactions announced in August included the $2.4 billion acquisition of Duo Security by Cisco, the $1.4 billion purchase of Axa Life Europe by Cinven, the $5.3 acquisition of Bemis by Amcor, the $1.2 billion purchase of Deep Gulf Energy by Kosmos Energy, the $5.3 billion acquisition of Dun & Bradstreet by an investor group led by CC Capital, Amadeus’ $1.5 billion purchase of TravelClick, the $3.4 billion purchase of an additional stake in Canopy Growth by Constellation Brands, the $8.4 billion acquisition of Energen by Diamondback Energy, the $1.6 billion purchase of KMG Chemicals by Cabot Microelectronics, Best Buy’s $800 million purchase of GreatCall, the $3.2 billion purchase of SodaStream by Pepsi, the $2.2 billion acquisition of Keystone Foods by Tyson Foods, the $800 million purchase of Ziylo by Novo Nordisk, the $300 million purchase of Zoe’s Kitchen by Cava Group, the Hartford’s $2.1 billion purchase of the Navigators Group, the $2.2 billion acquisition of Quadrant Energy by Santos, the $11 billion merger of TPG Telecom and Vodafone Hutchinson Australia, Stryker’s $1.4 billion purchase of K2M, the $473 million purchase of Cambian by CareTech, the $1.7 billion purchase of Universal Hospital Services by Federal Street Acquisition, and the $1.5 billion acquisition of esure and Bain Capital.

Developed market equities were mixed in August (see page 8), with gains in the S&P500 (+3.2%) and Australia (+1%), and the largest losses in Italy (-9%), Spain (-5.4%), and the UK (-3.3%). US large caps underperformed small caps, with the Russell 1000 up 3.4% and the Russell 2000 up 4.3% (see page 3). IT (+6.9%), Consumer Discretionary (+5.1%), and Healthcare (+4.4%) were the best performing sectors in August; Energy (-3.3%), Materials (-0.5%), and Industrials (+0.3%) were the worst performing sectors (see page 2). Large cap growth (+5.5%) outperformed large cap value (+1.5%) in August (see page 3). Emerging market equities were mixed in August (see page 9), with the largest gains in India (+4.4%), the Philippines (+3.2%), and Indonesia (+3%), and the largest losses in Argentina (-23.6%), China (-3.8%), and Brazil (-2.8%).

In currencies, the USD Index was up 0.6% in August (see page 10). The Swiss Franc (+2.2%) and Japanese Yen (+0.7%) gained against the USD, while the Swedish Krona (-3.9%), Australian Dollar (-3.2%), and New Zealand Dollar (-2.9%) had the largest losses. Emerging market currencies were mostly lower against the USD, with gains in the Thai Baht (+1.2%), and the largest losses in the Turkish Lira (-25%), South African Rand (-9.6%), and Brazilian Real (-7.3%).

The US interest rate curve flattened in August (see page 12). 10 year rates closed the month at 2.86%, down from 2.96% at July month end. US investment grade and high yield spreads were little changed in August (see page 13).

In commodities, the GSCI index was up 1.1% in August (see page 11), with gains in Energy (+3.6%), and losses in Agriculture (-5.5%), Industrial Metals (-2.9%), Precious Metals (-2.5%), and Livestock (-0.3%). Within individual commodities, Cocoa (+6%), Heating Oil (+4.9%), and Natural Gas (+4.8%) saw the biggest gains, while Coffee (-9.8%), Cotton (-8.1%), and Soybeans (-8.1%) saw the biggest losses. Gold was down 2% for the month.

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July 2018 - Monthly Market Commentary

July was a fairly strong month for global risk assets. Developed and emerging market equities moved mostly higher, with value finally outperforming growth in the US, the USD index was flat, the US interest rate curve shifted higher, and credit spreads tightened. Minutes from the June Federal Reserve meeting showed that officials may seek to end an accommodative policy over the next year. In his Congressional testimony, Fed Chair Powell reaffirmed the rate hiking plan and stated that it was too soon to tell if recent trade disputes might change that plan. At its July meeting, the ECB left monetary policy and plans to end quantitative easing at year end unchanged. The Bank of Japan, meanwhile, indicated that it would continue its quantitative easing program for “an extended period of time”. Second quarter US GDP grew at a 4.1% annual rate, the strongest growth in almost four years. The US job report showed that 213,000 non-farm jobs were added in June (the 93rd consecutive month of job creation), the unemployment rate increased to 4%, the labor force participation rate rose to 62.9%, and average hourly earnings rose 2.7% from a year earlier.

Notable corporate transactions announced in July included the $22 billion deal whereby Dell Technologies will again become publicly traded via the acquisition of Dell tracker stock DVMT, the $3.7 billion sale by Enbridge of 19 natural gas gathering and processing plants to Brookfield, the $4.8 acquisition of Embraer’s commercial jet business by Boeing, the $1.2 billion purchase of Envirotainer by Cinven, the $1.5 billion acquisition of Camso by Michelin, Otsuka’s $430 million purchase of Visterra, the $5.6 billion acquisition of LifePoint Health by Apollo, the $2.6 billion acquisition of Charles River Development by State Street, the $4.2 billion purchase of Platform Specialty Products’ agrochemicals unit by UPL, Wren House’s $1.7 billion purchase of North Sea Midstream Partners, the $1.6 billion purchase of LCY Chemical by a consortium led by KKR, the $2.6 billion acquisition of Aleris by Novelis, the $2.6 billion purchase of Linxens by Tsinghua Unigroup, the $640 million purchase of Leumi Card by Warburg Pincus, BP’s purchase of shale assets from BHP Billiton for $10 billion, the $1.8 billion acquisition of various food businesses from SGA Food Group by US Foods, the $11.4 billion acquisition of Forest City by Brookfield, SS&C’s $1.5 billion purchase of Eze Software, the $2.9 billion purchase of Supervalu by United Natural Foods, the $1.7 billion purchase of a majority of Cetera Financial by Genstar Capital, the $5.5 billion merger of NCI Building Systems and Ply Gem, the $2.6 billion purchase of the Norwegian unit of TDC by Telia, the $1 billion purchase of US Security Associates by Allied Universal, the $800 million acquisition of Datorama by Salesforce, the $1.3 billion merger of Akebia Therapeutics and Keryx Biopharmaceuticals, the $1.8 billion purchase of Neovia by ADM, the $2.5 billion acquisition of Suse by EQT, and the $19 billion acquisition of CA Technologies by Broadcom.

Developed market equities moved higher in July (see page 8), with the largest gains in Germany (+4.1%), the S&P500 (+3.7%), and Spain (+3.6%). US large caps outperformed small caps, with the Russell 1000 up 3.5% and the Russell 2000 up 1.7% (see page 3). Industrials (+7.3%), Healthcare (+6.6%), and Financials (+5.3%) were the best performing sectors in July; Real Estate (+1.1%), Energy (+1.4%), and Consumer Discretionary (+1.8%) were the worst performing sectors (see page 2). Large cap growth (+2.9%) underperformed large cap value (+4%) in July (see page 3). Emerging market equities were mostly higher in July (see page 9), with the largest gains in Argentina (+14.1%), Brazil (+9.2%), and Thailand (+8.2%), and losses in China (-2.5%) and Korea (-1.2%).

In currencies, the USD Index was up 0.1% in July (see page 10). The Swedish Krona (+1.8%), Canadian Dollar (+1%), and New Zealand Dollar (0.7%) were the best performing against the USD, while the Japanese Yen (-1.1%), British Pound (-0.6%), and Norwegian Krone (-0.1%) moved lower. Emerging market currencies were mostly higher against the USD, with the largest gains in the Mexican Peso (+6.8%), South African Rand (+3.4%), and Brazilian Real (+3.2%).

US interest rates rose in July (see page 12). 10 year rates closed the month at 2.96%, up from 2.86% at June month end. Investment grade and high yield spreads tightened in July (see page 13).

In commodities, the GSCI index was down 3.5% in July (see page 11), with gains in Agriculture (+3.9%), and losses in Industrial Metals (-5.1%), Energy (-4.9%), Livestock (-4.1%), and Precious Metals (-2.5%). Within individual commodities, Wheat (+10.7%), Cotton (+6.9%), and Soybeans (+4.6%) saw the biggest gains, while Sugar (-13.7%), Lean Hogs (-13.5%), and Cocoa (-13.5%) saw the biggest losses. Gold was down 2.4% for the month.

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