October 2020 - Monthly Market Commentary

October was a mixed month for global risk assets, as strong global Q3 GDP reports were offset by growing concerns about renewed economic shutdowns amid a coronavirus resurgence. In equities, emerging markets, value, and small caps outperformed, while the oil complex sold off sharply, the US dollar index strengthened slightly, and the US yield curve steepened. The US GDP report showed a 33.1% annualized Q3 economic expansion following a 31.4% Q2 plunge; Europe, meanwhile, rebounded 12.7% following an 11.8% Q2 contraction., and China reported a 4.9% Q3 GDP increase. Congress and the White House failed to agree on an additional stimulus package, despite warnings from Federal Reserve Chairman Powell that such a delay could “lead to a weak recovery, creating unnecessary hardship for households and businesses”; the Fed’s next policy meeting comes just after the November 3 US presidential election. The September US jobs report showed that 661,000 jobs were added during the month, the unemployment rate fell to 7.9% (from 8.4%), the labor force participation rate fell to 61.4%, average hourly earnings increased 4.6% from the prior year, and the total labor force fell to 160.1 million, of which 147.5 million were employed.

Developed market equities moved mostly lower in October, (see page 8) with gains only in Australia (+2.1%), and the largest losses in Germany (-9.7%), Italy (-6.9%), and the UK (-5.1%). US large caps underperformed small caps, with the Russell 2000 up 2.1%, and the Russell 1000 down 2.4% (see page 3). The best performing S&P 500 sectors in October were Utilities (+5%), Communication Services (+0.8%), and Materials (-0.8%), and the worst performing were IT (-5.1%), Energy (-4.4%), and Healthcare (-3.7%). Large cap growth (-3.4%) underperformed large cap value (-1.3%) in October (see page 3). Emerging market equities were mixed (see page 9), with the biggest gains in the Philippines (+7.8%), Indonesia (+6.8%), and China (+5.2%), and the biggest losses in Russia (-6.6%), Thailand (-3.9%), and Korea (-2.4%).

In currencies, the USD Index strengthened slightly in October (see page 10), with the largest gains against the USD seen in the Japanese Yen (+0.8%), Swedish Krona (+0.6%), and Swiss Franc (+0.4%), and the largest losses in the Norwegian Krone (-2.1%), Australian Dollar (-1.9%), and Euro (-0.6%). Emerging market currencies were mixed against the USD, with the biggest gain in the Mexican Peso (+4.4%), South African Rand (+3.1%), and Korean Won (+2.5%), and the biggest losses in the Turkish Lira (-7.5%), Brazilian Real (-2.4%), and Russian Ruble (-2.3%).

The US interest rate curve steepened in October (see page 12). 10 year rates closed the month at 0.87%, from 0.68% at September month end. US investment grade spreads widened, while high yield spreads were little changed (see page 13).

In commodities, the GSCI index fell (-3.6%) in October (see page 11), with gains in Agriculture (+3.8%) and Industrial Metals (+2.8%), and losses in Precious Metals (-0.7%), Livestock (-1.7%), and Energy (-9%). Within individual commodities, Natural Gas (+13.3%), Sugar (+6.3%), and Aluminum (+5.3%) saw the biggest gains, while Crude Oil (-11.6%), Brent Crude (-11.3%), and Gasoline (-10.7%) saw the biggest losses. Gold was down 0.8% in October.

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September 2020 - Monthly Market Commentary

September was a mixed month for global risk assets, as economies around the world continued to balance full reopening with ongoing regional coronavirus outbreaks. Global equities moved mostly lower, the oil complex sold off sharply, the US dollar index strengthened, and the US yield curve was little changed. The Federal Reserve indicated that it would continue to support the economic recovery by setting expectations that it would keep interest rates near zero for at least the next three years. US and Chinese August manufacturing and non-manufacturing PMI readings all held above 50, pointing to continued economic expansion. Yoshihide Suga was elected as Japan’s new Prime Minister, and with several key cabinet positions unchanged from the prior Abe administration, little policy change is expected in the near term. The most recent initial US jobless claims report (for the week ended September 26) showed that weekly initial jobless claims totaled 837,000, while continuing claims fell to 11.8 million. The August US jobs report showed that 1.4 million jobs were added during the month, the unemployment rate fell to 8.4% (from 10.2%), the labor force participation rate rose to 61.7%, average hourly earnings increased 4.7%, and the total labor force rose to 160.8 million, of which 147.3 million were employed.

Developed market equities moved mostly lower in September, (see page 8) with gains in Japan (+0.5%), and the largest losses in Hong Kong (-5.2%), Italy (-3.9%), and Australia (-3.8%). US large caps slightly underperformed small caps, with the Russell 2000 down 3.3%, and the Russell 1000 down 3.7% (see page 3). The best performing S&P 500 sectors in September were Materials (+1.3%), Utilities (+1.1%), and Industrials (-0.8%), and the worst performing were Energy (-14.5%), Communication Services (-6.5%), and IT (-5.4%). Large cap growth (-4.7%) underperformed large cap value (-2.5%) in September (see page 3). Emerging market equities mostly moved lower (see page 9), with the biggest gains in Mexico (+2%), Korea (+1.5%), and India (+0.9%), and the biggest losses in Indonesia (-11.1%), Thailand (-7.9%), and Brazil (-4.6%).

In currencies, the USD Index strengthened in September (see page 10), with the Japanese Yen (+0.4%) posting gains against the USD, and the Norwegian Krone (-6.4%) showing the largest loss. Emerging market currencies were mixed against the USD, with the biggest gain in the Korean Won (+2%), and the biggest loss in the Turkish Lira (-4.8%).

The US interest rate curve was little changed in September (see page 12). 10 year rates closed the month at 0.68%, from 0.70% at August month end. US investment grade spreads tightened, while high yield spreads slightly widened (see page 13).

In commodities, the GSCI index fell (-3.6%) in September (see page 11), with gains in Livestock (+6.3%), and Agriculture (+4%), and losses in Industrial Metals (-2.2%), Precious Metals (-5.7%), and Energy (-8%). Within individual commodities, Lean Hogs (+19.6%), Soybeans (+7.4%), and Corn (+5.9%) saw the biggest gains, while Natural Gas (-19.9%), Silver (-17.8%), and Coffee (-14%) saw the biggest losses. Gold was down 4.2% in September.

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August 2020 - Monthly Market Commentary

Most risk assets continued to rally in August as economies around the world moved forward with reopening despite ongoing regional coronavirus outbreaks. Global equities moved mostly higher, with US large cap growth stocks once again leading the rally, the oil complex continued its rebound, the US dollar index weakened, the US yield curve steepened, and high yield credit spreads tightened; the Nasdaq index and the price of gold again reached all-time highs during the month. Fed Chairman Powell announced a major policy shift in August with “average inflation targeting”, meaning that the central bank will allow inflation to exceed its 2% target before raising interest rates, and in effect focusing more on the employment component of its dual mandate, particularly at lower income levels; it is noteworthy that the Fed has struggled to hit even the 2% inflation target since the end of the global financial crisis. US and Chinese August manufacturing PMI readings both held above 50, pointing to continued expansion, and non-manufacturing PMI rose to 54.8 and 55.2, respectively. The most recent initial US jobless claims report (for the week ended August 22) showed that weekly jobless claims totaled just above 1 million, while continuing claims fell to 14.5 million. The July US jobs report showed that 1.8 million jobs were added during the month, the unemployment rate fell to 10.2% (from 11.1%), the labor force participation rate slipped to 61.4%, average hourly earnings increased 4.8%, and the total labor force held at 159.9 million, of which 143.5 million were employed.

Developed market equities moved higher in August (see page 8), with the largest gains in Japan (+7.9%), Hong Kong (+7.9%), and the S&P 500 (+7.1%). US large caps outperformed small caps, with the Russell 2000 up 5.6%, and the Russell 1000 up 7.3% (see page 3). The best performing S&P 500 sectors in August were IT (+12%), Consumer Discretionary (+9.5%), and Communication Services (+9.1%), and the worst performing were Utilities (-2.6%), Energy (-1%), and Real Estate (0%). Large cap growth (+10.3%) outperformed large cap value (+4.1%) in August (see page 3). Emerging market equities were mixed (see page 9), with the biggest gains in China (+5.4%), Indonesia (+2.3%), and India (+1.8%), and the biggest losses in Malaysia (-5.4%), Brazil (-4%), and Thailand (-2.4%).

In currencies, the USD Index weakened in August (see page 10), with the Norwegian Krone (+4.2%), Australian Dollar (+3.3%), and Canadian Dollar (+2.8%) posting the biggest gains against the USD. Emerging market currencies were mixed against the USD, with the biggest gains in the Chinese Yuan (+2%), Indian Rupee (+2%), and Mexican Peso (+1.8%), and the biggest losses in the Turkish Lira (-5.1%), Brazilian Real (-5%), and Taiwan Dollar (-0.1%).

The US interest rate curve steepened in August (see page 12). 10 year rates closed the month at 0.70%, from 0.53% at July month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+4.6%) in August (see page 11), with gains in Agriculture (+5.5%), Energy (+5.4%), Industrial Metals (+5.2%), and Precious Metals (+1.3%) while Livestock moved lower (-0.5%). Within individual commodities, Natural Gas (+37.4%), Silver (+17.2%), and Cocoa (+11.1%) saw the biggest gains, while Feeder Cattle (-4.6%), Live Cattle (-2.4%), and Heating Oil (-2.3%) saw the biggest losses. Gold was down 0.4% in August..

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July 2020 - Monthly Market Commentary

Most risk assets rallied in July despite the continued upward march of global coronavirus case and death counts, as the fitful reopening of the global economy moved cautiously forward.  Global equities moved mostly higher, with large cap growth stocks again leading the rally, the oil complex continued its rebound, the US dollar index significantly weakened, and the US yield curve flattened; notably, both the Nasdaq index and the price of gold reached all-time highs during the month.  Q2 GDP reports highlighted the disparate economic impact wrought by the coronavirus – US GDP down 9.5% for the quarter, Europe GDP down 12.1%, and China GDP up 3.2%.  The European Commission reached a deal on a 750 billion euro stimulus package of grants and loans focused on those regions and sectors most impacted by the virus.  In the US, partisan disagreement on an additional stimulus package led to the expiration of emergency unemployment benefits.  At its July policy meeting, the Federal Reserve made no change to interest rates, pledged to continue its extraordinary monetary support, and stated that “the path of the economy will depend significantly on the course of the virus”.  China’s industrial production increased 4.8% in June, and its July PMI reading rose to 51.1, though retail sales fell for the fifth straight month.  The most recent initial US jobless claims report (for the week ended July 25) showed that weekly jobless claims totaled 1.4 million, the 19^th consecutive week above 1 million (a level never reached in the pre pandemic era), and the second consecutive week in which claims rose, and continuing claims rose to over 17 million.  The June US jobs report showed that 4.8 million jobs were added during the month, the unemployment rate fell to 11.1% (from 13.3%), the labor force participation rate rose to 61.5%, average hourly earnings decreased 1.2%, and the total labor force rose to 159.9 million, of which 142.2 million were employed. 

Developed market equities were mixed in July (see page 8), with the largest gains in the S&P 500 (+5.6%), Canada (+4.2%), and Australia (+0.3%), and the largest losses in Spain (-4.8%), the UK (-5.4%), and Japan (-3.6%).  US large caps outperformed small caps, with the Russell 2000 up 2.8%, and the Russell 1000 up 5.9% (see page 3).  The best performing S&P 500 sectors in July were Consumer Discretionary (+9%), Utilities (+7.8%), and Materials (+7.1%), and the worst performing were Energy (-5.1%), Financials (+3.8%), and Real Estate (+4%).  Large cap growth (+7.7%) outperformed large cap value (+4%) in July (see page 3).  Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Taiwan (+15.4%), Argentina (+12.5%), and India (+9.4%), and losses in the Philippines (-4.2%), Thailand (-2%), and Mexico (-1.2%).

In currencies, the USD Index weakened sharply in July (see page 10), and the Swedish Krona (+6.2%), Norwegian Krone (+5.8%), and British Pound (+5.5%) saw the biggest gains against the USD.  Emerging market currencies were mixed against the USD, with the biggest gains in the Brazilian Real (+4.6%), Mexican Peso (+3.3%), and South African Rand (+1.6%), and the biggest losses in the Russian Ruble (-3.9%), Turkish Lira (-1.7%), and Indonesian Rupiah (-1.6%).

The US interest rate curve flattened in July (see page 12).  10 year rates closed the month at 0.53%, from 0.66% at June month end.  US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+3.8%) in July (see page 11), with gains in Precious Metals (+10.3%), Industrial Metals (+6.7%), Livestock (+6.1%), Energy (+2.6%), and Agriculture (+1.4%).  Within individual commodities, Silver (+30%), Coffee (+17.8%), and Cocoa (+9.8%) saw the biggest gains, while Corn (-7.5%) and Gasoline (-0.8%) saw the biggest losses.  Gold was up 8.5% in July.

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June 2020 - Monthly Market Commentary

Most risk assets rallied in June, as coronavirus case and death counts continued to mount around the world, particularly in North and South America, global economies moved cautiously to reopen, and global central banks provided continued verbal and monetary support. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex continued to rebound, the US dollar index weakened, and credit spreads widened. At its June policy meeting, the Federal Reserve maintained rates near zero, indicated that it would be targeting monthly purchases of $80 billion of Treasuries and $40 billion of mortgage backed securities going forward, and announced that in addition to bond ETF purchases, it would begin buying individual corporate bonds; the Fed also predicted a 6.5% GDP contraction in 2020, followed by a 5% rebound in 2021. Later in the month, Chairman Powell cautioned that the timing and strength of any economic recovery was extremely uncertain. US industrial production rose by 1.4% in May, led by a 3.8% jump in manufacturing output, while the CPI report showed that consumer prices fell 0.1% in May for the third consecutive monthly decline. In Europe, the ECB maintained interest rates at previously low levels, increased the level of its bond purchases by 600 billion euros (bringing the total post pandemic purchases to 1.35 trillion euros), and extended the duration of the new bond purchasing program to June 2021; the ECB predicted an 8.7% GDP contraction in 2020, and a 5.2% rebound in 2021. Many Asian central banks, including in China, Australia, and Japan, expressed the need for ongoing monetary support and the willingness to implement additional easing measures if necessary. China’s industrial production increased 4.4% in May, though retail sales fell for the fourth straight month. The most recent initial jobless claims report (for the week ended June 20) showed that weekly jobless claims totaled 1.5 million, the 14th consecutive week above 1 million (a level never reached in the pre pandemic era), though continuing claims fell below 20 million for the first time in two months. The May US jobs report showed that 2.5 million jobs were added during the month, the unemployment rate fell to 13.3% (from 14.7%), the labor force participation rate rose to 60.8%, average hourly earnings decreased 6.7% from a year earlier (as more lower paying workers were reemployed), and the total labor force rose to 158.2 million, of which 137.2 million were employed.

Developed market equities rose in June (see page 8), led by the Hong Kong (+11%), Italy (+6.4%), and Germany (+5.2%). US small caps outperformed large caps, with the Russell 2000 up 3.5%, and the Russell 1000 up 2.2% (see page 3). The best performing S&P 500 sectors in June were IT (+7.1%), Consumer Discretionary (+5%), and Materials (+2.2%), and the worst performing were Utilities (-4.7%), Health Care (-2.4%), and Energy (-1.3%). Large cap growth (+4.4%) outperformed large cap value (-0.7%) in June (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in China (+8.8%), Brazil (+8.6%), and Argentina (+7.9%), and losses in Russia (-1.2%) and Thailand (-0.8%).

In currencies, the USD Index weakened in June (see page 10). The New Zealand Dollar (+4%), Australian Dollar (+3.5%), and Swiss Franc (+1.5%) saw the biggest gains against the USD, while the Japanese Yen (-0.1%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Thai Baht (+2.9%), Koran Won (+2.7%), and Taiwan Dollar (+1.5%), and the biggest losses in the Mexican Peso (-3.6%), Brazilian Real (-2.3%), and Russian Ruble (-1.5%).

The US interest rate curve was little changed on the month (see page 12). 10 year rates closed the month at 0.66%, from 0.65% at May month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index increased (+5.1%) in June (see page 11), with gains in Energy (+8.9%), Industrial Metals (+7.3%), Precious Metals (+2.5%), and Agriculture (+0.7%), and losses in Livestock (-7.4%). Within individual commodities, Copper (+11.9%), Heating Oil (+11.8%), and Gasoline (+10.1%) saw the biggest gains, while Lean Hogs (-19.1%), Natural Gas (-10.1%), and Cocoa (-8.9%) saw the biggest losses. Gold was up 2.8% in June.

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May 2020 - Monthly Market Commentary

Most risk assets continued to rally in May, as coronavirus new case and death curves declined in many countries, shut down economies continued to gradually reopen, and additional fiscal and monetary stimulus was implemented. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex rebounded strongly, the US dollar index weakened, and credit spreads tightened. During the month, the Federal Reserve confirmed the start of its corporate bond buying programs, changed bank capital requirements to encourage participation in the Money Market Mutual Fund Liquidity and Paycheck Protection Programs, updated the terms of its Municipal Liquidity Facility, clarified its high yield ETF purchase plans, and announced commencement dates for its Main Street Business Lending Program. In China, fixed asset investment fell 10.3% in the first four months of the year, and infrastructure investment fell 11.8%; China decided not to set an annual GDP growth target amidst coronavirus uncertainties. Cumulative US jobless claims over the 10 weeks ended May 23 exceeded 40 million, and continuing claims through the week ended May 16 exceeded 21 million. The April US jobs report showed that 20.5 million jobs were lost during the month, the unemployment rate rose to 14.7% (from 4.4%), the labor force participation rate fell to 60.2% (the lowest level since 1973), average hourly earnings rose 5% from a year earlier (this sharp increase was inflated by the loss of many lower paying jobs), and the total labor force fell to 156.5 million, of which 133.4 million were employed.

Developed market equities mostly rose in May (see page 8), led by the Germany (+7%), Japan (+6.7%), and the S&P500 (+4.7%), and losses in Hong Kong (-8.4%). US small caps outperformed large caps, with the Russell 2000 up 6.5%, and the Russell 1000 up 5.3% (see page 3). All 11 S&P 500 sectors were up in May with the biggest gains in IT (+7.1%), Materials (+7%), and Communication Services (+6%). Large cap growth (+6.7%) outperformed large cap value (+3.4%) in May (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Argentina (+19.9%), Brazil (+8.9%), and Malaysia (+6%), and the largest losses in India (-2.1%), Taiwan (-1.6%), and Mexico (-1%).

In currencies, the USD Index weakened in May (see page 10). The Norwegian Krone (+5.4%), Swedish Krona (+3.5%), and Australian Dollar (+2.4%) saw the biggest gains against the USD, while the British Pound (-2%) and Japanese Yen (-0.6%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+9%), Russian Ruble (+6%), and South African Rand (+5.6%), and the biggest losses in the Korean Won (-1.4%), Malaysian Ringgit (-1.2%), and Taiwan Dollar (-1%).

The US interest rate curve flattened at the short and intermediate terms, but steepened at the long end (see page 12). 10 year rates closed the month at 0.65%, little changed from April month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+16.4%) in May (see page 11), with gains in Energy (+35.2%), Livestock (+5.4%), Precious Metals (+4.2%), Industrial Metals (+2.9%), and losses in Agriculture (-0.2%). Within individual commodities, Crude Oil (+55%), Brent Crude (+38.6%), and Gasoline (+35.4%) saw the biggest gains, while Natural Gas (-16.7%), Coffee (-9.4%), and Lean Hogs (-3.7%) saw the biggest losses. Gold was up 2.7% in May.

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April 2020 - Monthly Market Commentary

Risk assets mostly rebounded in April from the sharp March selloff, as many regional coronavirus infection and hospitalization curves flattened and then declined, some economies began a gradual reopening, and dramatic fiscal and monetary stimulus was implemented around the world. Global equities moved mostly higher, with the energy sector and growth stocks leading the rally, the US yield curve flattened slightly, the US dollar index was unchanged, credit spreads tightened, and oil’s historic collapse continued. The Federal Reserve held interest rates near zero at its April meeting, and indicated that the central bank will “use its tools and act as appropriate to support the economy”, and that additional fiscal stimulus would likely be required to support an economic recovery. Similarly, the ECB kept interest rates unchanged at its April meeting, but indicated that it stood prepared to increase its previously enacted stimulus measures as needed. The US Congress passed an additional $480 billion stimulus package, which, among other things, added additional funding to the previously enacted Paycheck Protection Program. First quarter GDP declined 4.8% in the US, the largest quarterly decline since Q4 2008, and 3.8% in the euro zone, the largest quarterly decline since records began in 1995. For the week ended April 25, the number of Americans filing for unemployment hit 3.8 million, bringing the rolling six week total to 30.3 million. The lagging indicator US jobs report showed that 701,000 jobs were lost in March (ending a record streak of 113 consecutive months of job creation), the unemployment rate rose to 4.4% (off of a 50 year low of 3.5%), the labor force participation rate fell to 62.7%, average hourly earnings rose 3.1% from a year earlier, and the total labor force fell to 162.9 million, of which 155.8 million were employed.

Developed market equities rebounded in April (see page 8), led by the S&P500 (+12.8%), Germany (+9.9%), and Canada (+9.6%). US small caps slightly outperformed large caps, with the Russell 2000 up 13.7%, and the Russell 1000 up 13.2% (see page 3). All 11 S&P 500 sectors were up in April with the biggest gains in Energy (+29.8%), Consumer Discretionary (+20.5%), and Materials (+15.3%). Large cap growth (+14.8%) outperformed large cap value (+11.2%) in April (see page 3). Emerging market equities also rebounded (see page 9), with the biggest gains in India (+15.3%), Thailand (+14.4%), and Taiwan (+12.2%).

In currencies, the USD Index was flat in April (see page 10). The Australian Dollar (+6.2%), New Zealand Dollar (+2.9%), and Swedish Krona (+1.5%) saw the biggest gains against the USD, while the Euro (-0.7%) and Swiss Franc (-0.5%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Indonesian Rupiah (+7.5%), Russian Ruble (+5.7%), and Taiwan Dollar (+1.8%), and the biggest losses in the Turkish Lira (-5.3%), Brazilian Real (-5.1%), and South African Rand (-3.7%).

The US interest rate curve flattened slightly in April (see page 12). 10 year rates closed the month at 0.64%, down from 0.67% at March month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index moved lower (-9.7%) in April (see page 11), with losses in Energy (-19.5%), Livestock (-5.2%), and Agriculture (-4.8%), and gains in Precious Metals (+6%) and Industrial Metals (+1%). Within individual commodities, Gasoline (+21%), Cotton (+11.6%), and Platinum (+11.4%) saw the biggest gains, while Crude Oil (-40.7%), Heating Oil (-19.8%), and Palladium (-15.1%) saw the biggest losses. Gold was up 6.1% in April.

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