March 2018 - Monthly Market Commentary

March was a mixed month for global risk asskets. Developed and emerging market equities mostly moved lower, the USD weakened, the US yield curve flattened, the oil complex moved higher, and credit spreads widened. The Federal Reserve increased its benchmark rate by a quarter percentage point, with expectations for two to three additional hikes this year, and three hikes in 2019. The ECB dropped its pledge to accelerate its monthly bond purchases in case of economic weakness in a further step towards policy normalization. The US job report showed that 313,000 non-farm jobs were added in February (the 89th consecutive month of job creation), the unemployment rate remained at 4.1%, the labor force participation rate rose to 63%, and average hourly earnings rose 2.6% from a year earlier. 

Notable corporate transactions announced in March included the $8.3 billion acquisition of Microsemi by Microchip Technology, the $1.2 billion purchase of HSH Nordbank by Cerberus and JC Flowers, the $15.3 billion acquisition of XL Group by AXA, the purchase of 85% of MassMutual Japan by Nippon Life for $935 million, S&P Global’s $550 million purchase of Kensho Technologies, the $2.7 billion take private transaction of AmTrust, the $67 billion acquisition of Express Scripts by Cigna, Dana’s $6.1 billion purchase of GKN’s driveline division, the $11 billion purchase of Fibria Celulose bySuzano Papel e Celulose, the $1.8 billion acquisition of Oclaro by Lumentum, the $3.4 billion purchase of Orbotech by KLA-Tencor, Foxconn’s $866 million purchase of Belkin, and the $13 billion purchase of Novartis’ stake in their consumer health care joint venture by GlaxoSmithKline.

Developed market equities were lower in March (see page 8), with the largest losses in Australia (-4.1%), Japan (-3.1%), and Spain (-2.7%). US small caps outperformed large caps, with the Russell 2000 up 1.3% and the Russell 1000 down 2.3% (see page 3). Real Estate (+3.8%), Utilities (+3.8%), and Energy (+1.7%) were the best performing sectors in March; Financials (-4.3%), Materials (-4.2%), and IT (-3.9%) were the worst performing sectors (see page 2). Large cap growth (-2.7%) underperformed large cap value (-1.8%) in March (see page 3). Emerging market equities were mostly lower in March (see page 9), with the gains in Korea (+0.8%), Brazil (+0.4%), and Taiwan (+0.4%); Indonesia (-6.9%), Philippines (-5.8%), and India (-3.5%) were the worst performing. 

In currencies, the USD Index was down 0.5% in March (see page 10). The British Pound was up +1.9% and the Euro was up 0.9% against the USD, while the worst performing currencies were the Swiss Franc (-1.2%), Australian Dollar (-1.1%), and Swedish Krona (-0.8%). Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+3.6%), Korean Won (+2.1%), and Malaysian Ringgit (+1.5%); Turkish Lira (-3.6%), Brazilian Real (-2.0%), and Russian Ruble (-1.6%) were the worst performing.

US interest rates flattened in March (see page 12). 10 year rates closed the month at 2.74%, down from 2.86% at February month end. Investment grade and high yield spreads widened in March (see page 13).

In commodities, the GSCI index was up 2.2% in March (see page 11), with gains in Energy (+6.0%) and Precious Metals (+0.3%), and losses in Livestock (-7.2%), Industrial Metals (-4.5%), and Agriculture (-2.8%). Within individual commodities, Cocoa (+15.4%), Brent Crude (+7.6%), and Heating Oil (+6.1%) saw the biggest gains, while Live Cattle (-10.4%), Feeder Cattle (-9.6%), and Palladium (-8.9%) saw the biggest losses. Gold was up 0.4% for the month.

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February 2018 - Monthly Market Commentary

February saw a sharp reversal and subsequent bounce in global risk assets. Developed and emerging market equities moved lower, the USD strengthened, US interest rates rose across the curve, the oil complex moved lower, and credit spreads widened. The Bank of England kept rates unchanged, but indicated that tighter monetary policy may be in store given stronger economic growth. US CPI rose 2.1% from a year earlier, stoking fears of rising inflation and tighter US monetary policy. Minutes from the January Federal Reserve meeting indicated no change to the future path of rate increases, yet in his first Congressional testimony as Fed Chairman, Jerome Powell took a slightly more hawkish tone and suggested the possibility of four rate increases in 2018. The US job report showed that 200,000 non-farm jobs were added in January (the 88th consecutive month of job creation), the unemployment rate remained at 4.1%, the labor force participation rate remained at 62.7%, and average hourly earnings rose 2.9% from a year earlier.

Notable corporate transactions announced in February included the $2.5 billion acquisition of Modern Times by TDC, the $1 billion purchase of Avigilon by Motorola, the $1.4 billion sale of NRG’s integrated US renewable energy platform to Global Infrastructure Partners, the $500 million acquisition of the LA Times by Patrick Soon-Shiong, General Dynamics’ $6.8 billion purchase of CSRA, the $755 million purchase of Jarilowsky Fraser by Scotiabank, the $1.4 billion acquisition of Infinity Property and Casualty by Kemper, Charles River’s $800 million purchase of MPI Research, the $2.3 billion purchase of A. Schulman by LyondellBasell, the $24 billion merger of Albertsons and Rite Aid, the $1.2 billion purchase of CJ Healthcare by Korea Kolmar, Merck’s $394 million purchase of Viralytics, the $8 billion purchase of Blue Buffalo by General Mills, Roche’s $1.9 billion acquisition of Flatiron Health, the $400 million purchase of Poloniex by Circle, the $10 billion merger of Spectrum Brands and HRG, and the $1 billion purchase of Ring by Amazon.

Developed market equities were mostly lower in February (see page 8), with the largest losses in Spain (-6%), Germany (-5.2%), and Italy (-3.9%); Australia moved higher (+0.3%). US small caps underperformed large caps, with the Russell 2000 down 3.9% and the Russell 1000 down 3.7% (see page 3). Energy (-10.8%), Consumer Staples (-7.8%), and Telecom (-7.1%) were the worst performing sectors in February; IT moved slightly higher (+0.1%) (see page 2). Large cap growth (-2.6%) outperformed large cap value (-4.8%) in February (see page 3). Emerging market equities were mostly lower in February (see page 9), with the gains in Thailand (+2.5%), Russia (+1%), and Brazil (+0.5%); China (-6.4%), Mexico (-5.7%), and Argentina (-5.1%) were the worst performing.

In currencies, the USD Index was up +1.7% in February (see page 10). The Japanese Yen was up +2.3% against the USD, while the worst performing were the Swedish Krona (-4.9%), Canadian Dollar (-4%), and Australian Dollar (-3.6%). Emerging market currencies were mostly weaker against the USD, with the biggest losses in the Indonesian Rupiah (-2.9%), Indian Rupee (-2.5%), and Brazilian Real (-1.7%).

US interest rates moved higher across the curve in February (see page 12). 10 year rates closed the month at 2.86%, up from 2.71% at January month end. Investment grade and high yield spreads widened in February (see page 13).

In commodities, the GSCI index was down 3.3% in February (see page 11), with gains in Agriculture (+4.7%) and losses in Energy (-5.6%), Industrial Metals (-2.9%), Precious Metals (-2.1%), and Livestock (-1.7%). Within individual commodities, Cocoa (+9.6%), Wheat (+6.8%), and Cotton (+6%) saw the biggest gains, while Natural Gas (-11.2%), Gasoline (-7.9%), and Heating Oil (-7.6%) saw the biggest losses. Gold was down 1.8% for the month.

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January 2018 - Monthly Market Commentary

January was a very strong month for global risk assets. Developed and emerging market equities were mostly higher, the USD weakened, the US yield curve steepened, the oil complex moved higher, and credit spreads tightened. While the Federal Reserve kept rates unchanged at their month end meeting and said that the path of increases would continue to be gradual, minutes from the December meeting indicated a potentially steeper path of future rate increases as a result of the US tax code overhaul. Congress confirmed Jerome Powell as the next Chairman of the Federal Reserve, who many believe will continue to raise rates at a slow and steady pace. The US job report showed that 148,000 non-farm jobs were added in December, the unemployment rate held at 4.1%, the labor force participation rate held at 62.7%, and average hourly earnings rose 2.5%.

Notable corporate transactions announced in January included the $7.7 billion merger of Dominion Energy and Scana, the $4.6 billion acquisition of Westinghouse by Brookfield, the $315 million purchase of Billabong by Boardriders, the $7 billion acquisition of Impact Biomedicines by Celgene, SS&C’s $5.4 billion purchase of DST Systems, Nestle’s $2.8 billion sale of its US confectionary business to Ferrero, the $3.5 billion purchase of Blackhawk Network by Silver Lake and P2 Capital, the $2 billion acquisition of Spectrum Brands by Energizer, Informa’s purchase of 65% of UBM for $5.3 billion, the $2 billion purchase of La Quinta by Wyndham, the acquisition of Bioverativ by Sanofi for $11.5 billion, the $5.6 billion purchase of Validus by AIG, Celgene’s $9 billion purchase of Juno Therapeutics, the $5.1 billion purchase of Patron Tequila by Bacardi, Lincoln Financial’s $3.3 billion acquisition of Liberty Life Assurance, the $415 million purchase of Asahi Fire & Marine by Rakuten, the $4.8 billion purchase of Ablynx by Sanofi, the $11 billion merger of Dr Pepper Snapple and Keurig Green Mountain, the $670 million purchase of Nuuvera by Aphria, the $852 million acquisition of CanniMed by Aurora Cannabis, the $4.9 billion purchase of KapStone Paper & Packaging by WestRock, the $6.1 billion acquisition of Xerox by Fujifilm, and the $20 billion purchase of a majority stake in the financial and risk business of Thomson Reuters.

Developed market equities were mostly higher in January (see page 8), with the largest gains in Italy (+7.4%), S&P 500 (+5.7%), and Spain (+5%); the worst performing were UK (-2%), Canada (-1.2%), and Australia (-0.6%). US small caps underperformed large caps, with the Russell 2000 up 2.6% and the Russell 1000 up 5.5% (see page 3). Consumer Discretionary (+9.3%), Information Technology (+7.6%), and Health Care (+6.6%) were the best performing sectors in January, while Utilities (-3.1%), Real Estate (-1.9%), and Telecom (+0.5%) were the worst performing (see page 2). Large cap growth (+7.1%) outperformed large cap value (+3.9%) in January (see page 3). Emerging market equities were higher in January (see page 9), with the biggest gains in China (+12.5%), Brazil (+11.5%), and Russia (+10.4%); Philippines (+1.4%), Indonesia (+1.6%), and Argentina (+2.2%) were the worst performing.

In currencies, the USD Index was down -3.2% in January (see page 10). The strongest currencies against the USD were the Norwegian Krone (+6.3%), British Pound (+5.0%), and Swiss Franc (+4.6%). Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Mexican Peso (+5.7%), South African Rand (+4.9%), and Malaysian Ringgit (+4.1%). The Korean Won (-0.3%), Indian Rupee (+0.3%), and Turkish Lira (+1.3%) were the worst performing emerging market currencies.

The US Treasury yield curve steepened in January (see page 12). 10 year rates closed the month at 2.71%, up from 2.41% at December month end. Investment grade and high yield spreads tightened in January (see page 13).

In commodities, the GSCI index was up 3.4% in January (see page 11), with gains in Energy (+5%), Precious Metals (+2.2%), Agriculture (+1.5%), Industrial Metals (+0.1%), and losses in Livestock (-1.0%). Within individual commodities, Crude Oil (+7.4%), Platinum (+7.2%), and Wheat (+5.9%) saw the biggest gains, while Sugar (-12.6%), Lean Hogs (-3.6%), and Palladium (-3.4%) saw the biggest losses. Gold was up 2.3% for the month.

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S&P 500 Annual Return, Volatility and Intrayear Drawdown 1998-2017

Note the high total return in 2017 with very low annualized volatility and intrayear drawdown.

December 2017 - Monthly Market Commentary

December was a strong month for global risk assets.  Developed and emerging market equities were mostly higher, the USD weakened, the US yield curve continued to flatten, the oil complex moved higher, and credit spreads tightened.  The Federal Reserve raised the federal funds rate by a quarter point to a range of 1.25%-1.5%, the third increase in 2017 and the fifth in the past two years.  Congress passed the most significant tax overhaul of the US tax code in 30 years.  The US job report showed that 228,000 non-farm jobs were added in November, the unemployment rate held at 4.1%, and the labor force participation rate held at 62.7%. 

Notable corporate transactions announced in December included the $990 million purchase of Big Fish Games from Churchill Downs by Aristocrat Leisure, the $69 billion acquisition of Aetna by CVS, the $3 billion purchase of General Cable by Prysmian Group, the $1.4 billion acquisition of Talcott Resolution by a group led by Cornell Capital, Intuit’s $340 million purchase of TSheets, Nestle’s $2.3 billion acquisition of Atrium Innovations, UnitedHealth’s $4.9 billion purchase of DaVita’s primary care unit, the $567 million acquisition of Cell Design Labs by Gilead and Kite, Apple’s purchase of Shazam for approximately $400 million, the $15.7 billion purchase of Westfield by Uniball-Rodamco, the acquisition of 3M’s communication markets division by Corning for $900 million, the $14 billion merger of BASF’s and LetterOne’s oil & gas businesses, Target’s $550 million purchase of Shipt, the $52.4 billion purchase of select assets of 21^st Century Fox by Disney, Iron Mountain’s $1.3 billion acquisition of IO Data Centers, the $2.2 billion purchase of OnePath Life by Zurich Insurance, the $8.1 billion purchase of Unilver’s spreads business by KKR, the $6.1 billion acquisition of Buwog by Vononia, the $1.6 billion purchase of Amplify by Hershey, the $4.9 billion acquisition of Synder’s Lance by Cambell Soup, the $1.2 billion purchase of Aconex by Oracle, the $1 billion acquisition of Cayan by TSYS, the $305 million purchase of Qdoba by Apollo Global, and the $1.2 billion acquisition of Sucampo Pharmaceuticals by Mallinckrodt.

Developed market equities were mostly higher in December (see page 8), with the largest gains in the UK (+5%), Hong Kong (+2.8%), and Australia (+1.7%); the worst performing were Italy (-2.2%), Spain (-1.8%), and France (-0.9%).  US small caps underperformed large caps, with the Russell 2000 down 0.4% and the Russell 1000 up 1.1% (see page 3).  Telecom (+5.8%), Energy (+4.9%), and Consumer Discretionary (+2.4%) were the best performing sectors in December, while Utilities (-6.1%), Health Care (-0.6%), and Real Estate (-0.5%) were the worst performing (see page 2).  Large cap value (+1.5%) outperformed large cap growth (+0.8%) in December (see page 3).  Emerging market equities were higher in December (see page 9), with the biggest gains in Indonesia (+8.9%), Argentina (+6.7%), and Brazil (+6.1%); Taiwan (+0.4%), Korea (+1.1%), and Russia (+1.6%) were the worst performing. 

In currencies, the USD Index was down -1% in December (see page 10).  The strongest currencies against the USD were the New Zealand Dollar (+3.9%), Australian Dollar (+3.2%), and Canadian Dollar (+2.6%).  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the South African Rand (+10.4%), Turkish Lira (+3%), and Korean Won (+2%) and losses in the Mexican Peso (-5.3%), Brazilian Real (-1.2%), and Indonesian Rupiah (-0.4%).

The US Treasury yield curve flattened in December (see page 12).  10 year rates closed the month at 2.41%, unchanged from November month end.  Investment grade and high yield spreads tightened in December (see page 13).

In commodities, the GSCI index was up 4.4% in December (see page 11), with gains in Industrial Metals (+8%), Energy (+5.9%), and Precious Metals (+2.8%), and losses in Livestock (-1.6%) and Agriculture (-0.8%).  Within individual commodities, Aluminum (+10.9%), Heating Oil (+9.1%), and Cotton (+8.1%) saw the biggest gains, while Cocoa (-7.6%), Feeder Cattle (-6.2%), and Soybeans (-3.5%) saw the biggest losses.  Gold was up 2.7% for the month.

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Year End 2017

Another year is ending, seventeen is in the books,

Before moving to the passing lane, let’s take some rearview looks.

Let’s review who’s made the news, every hero and every chump,

And take stock of where we are, a year into the reign of Trump.

We’ve had some ups and downs, of some things we are not proud,

Like the challenge some had measuring, the tiny inauguration crowd.

With my rhymes now please bear with me, your patience I do beseech,

Sit back now and relax, like Christie on a shut down beach.

The eclipse was pretty awesome, moving from northwest down to southeast,

Love or hate that guy Tom Brady, that Super Bowl comeback was pretty beast.

Sexual misconduct allegations, men abusing positions of power,

Weinstein, Franken, O’Reilly, Moore, Rose, Spacey, and Lauer.

Catalonia voted for secession, alas the Spaniards took it back,

Too bad Equifax can’t do that, with your personal info lost in the hack.

The women marched on Washington, with quite a large turnout,

The Astros won in seven, the Warriors won in a rout.

Bad news we had aplenty, always on terror high alert,

Trucks driving into people, bombs at a Manchester concert.

Migrants fleeing into Europe, refugees pouring out of Burma,

Hurricanes smashing the Carribean, Maria, Harvey, Nate and Irma.

Maduro in Venezuela, Kim Jong-Un and other kooks,

Destroying their own countries, or hell bent on having nukes.

Destruction in Aleppo, a double California fire outbreak,

Mass shootings in Vegas and Texas, a Mexican earthquake.

Goodbye we said to many, without them empty we may feel,

Chuck Berry rolled over Beethoven, Monte Hall taught us how to make a deal.

David Cassidy and Jerry Lewis, of you we were quite fond,

Hugh Hefner was our playboy, Roger Moore was our James Bond.

Sam Shephard and Tom Petty, Lil Peep and Fats Domino.

The psychopath Charles Manson, no one’s sad to see him go.

The diplomat Zbigniew Brzezinski, we never could pronounce your name,

The chancellor Helmut Kohl, reuniting Germany brought you fame.

The first year of the administration, an interesting one it’s been,

Few legislative victories, but a guilty plea from Flynn.

The Russia thing’s a mess, always another strange plot twist,

Manafort, Gates, and Papadopolous, on Mueller’s naughty list.

Price, Preibus and Steve Bannon, not one a year did survive,

Scaramucci had his day, well to be accurate he lasted five.

Comey from his post ejected, for excessive investigatory intervening,

Before resigning I wish that Spicer, had explained covfefe’s meaning.

Our country is divided, the left against the right,

Every issue that’s debated, ends up a bitter fight.

All you nutty fringe extremists, on both sides of the aisle,

Put your country before your party, and stop being so hostile.

Enough with the shouting and the violence, don’t get all up in my grill,

Please stop all of this chaos, we don’t want another Charlottesville.

Our country isn’t perfect, we have many problems that do displease,

But to the NFL you’ve made your point, it’s time to get up off your knees.

The markets have been bullish, with synchronized global growth,

To short every little vol spike, we all have now taken an oath.

Credit spreads have tightened, the momentum trade has been astounding,

US short rates have moved higher, dollar weakness has been confounding.

The yield curve it has flattened, emerging markets all have rallied,

Large cap growth stocks are on top, a winning year they’ve tallied.

But the winner of them all, has been the bitcoin and the crypto,

They’ve sprinted ever higher, this is no walk, or jog, or tiptoe.

So the New Year is upon us, it’s getting really close,

Please put down all those opioids, you don’t need another dose.

In eighteen please stay alert, I don’t think it will be boring,

Vol may just make a comeback, you don’t want to be caught snoring.

A new Fed chair’s taking charge, as the balance sheet is shrinking,

Of buying every dip, you may want to do some fast rethinking.

With your gains this holiday season, be generous and don’t be chintzy,

Be charitable with your winnings, and don’t spend $450 million on a da Vinci.

November 2017 - Monthly Market Commentary

November was a mixed month for global risk assets.  Developed and emerging market equities were mixed, the USD weakened, the US yield curve continued to flatten, the oil complex moved higher, and high yield credit spreads widened slightly.  The Federal Reserve left rates unchanged at its November 1 meeting with no surprises in its statement; minutes from the meeting reinforced expectations for an additional rate hike in December.  For the first time in a decade, the Bank of England raised its benchmark interest rate, but signaled that any additional tightening would be gradual.  The US job report showed that 261,000 non-farm jobs were added in October, the unemployment rate fell to 4.1%, and the labor force participation rate fell to 62.7%. 

Notable corporate transactions announced in November included the $780 million purchase of full control of the Kirin-Amgen joint venture by Amgen, Permira’s $1.75 billion acquisition of Duff & Phelps, the $384 million purchase of Tazo tea from Starbucks by Unilever, the $950 million acquisition of a majority stake in AmTrust Financial’s US based fee business by Madison Dearborn, Synopsys Inc’s $565 million purchase of Black Duck Software, Leonard Green’s $843 million acquisition of Pure Gym, Total’s $2 billion purchase of Engie SA’s LNG business, James Hardie’s $548 million purchase of Fermacell from Xella International, the $1 billion purchase of Musical.ly by Beijing Bytedance Technology, the acquisition of ShyaHsin Packaging by Blackstone for between $800-900 million, B.Riley Financial’s $143 million purchase of magicJack VocalTec, the $6 billion purchase of Cavium by Marvell Technology, AmerisourceBergen’s $815 million acquisition of H.D. Smith, the $1.9 billion merger of Stone Energy and Talos Energy, the $1.85 billion purchase of Time Inc. by Meredith, the $875 million acquisition of SeaStar Solutions by Dometic Group, the $2.9 billion purchase of a major stake in Sun Art Retail Group by Alibaba, the $425 million acquisition of Care Investment Trust by Mainstreet, Thoma Bravo’s $1.6 billion purchase of Barracuda, the $1.2 billion sale of Inkia Energy to I Squared Capital, the $521 million acquisition of Bazaarvoice by Marlin Equity, the $300 million purchase of Wall Street English by Baring Private Equity and CITIC Capital, Unilver’s acquisition of Sundial Brands, and the $2.9 billion acquisition of Buffalo Wild Wings by Roark Capital.

Developed market equities were mixed in November (see page 8), with the largest gains in Hong Kong (+3.5%), the S&P500 (+3%), and Australia (+1.5%); the worst performing were Spain (-2.9%), France (-2.1%), and Italy (-1.9%).  US small caps performed roughly in line with large caps, with the Russell 2000 up 2.9% and the Russell 1000 up 3% (see page 3).  Telecom (+6%), Consumer Staples (+5.7%), and Consumer Discretionary (+5.1%) were the best performing sectors in November, while Materials (+1%), IT (+1.1%), and Energy (+1.8%) were the worst performing (see page 2).  Large cap value (+3.1%) slightly outperformed large cap growth (+3%) in November (see page 3).  Emerging market equities were mostly lower in November (see page 9), with the biggest gains in Russia (+3.5%), China (+1.6%), and Thailand (+0.1%); Argentina (-4.7%), Taiwan (-3.8%), and Mexico (-3.2%) were the worst performing. 

In currencies, the USD Index was down -1.6% in November (see page 10).  The Norwegian Dollar was down (-1.8%) against the USD, while the strongest currencies against the USD were the Euro (+2.2%), British Pound (+1.8%), and Swiss Franc (+1.4%).  Emerging market currencies were mostly stronger against the USD, with the biggest gains in the Malaysian Ringgit (+3.5%), South African Rand (+3%), and Korean Won (+2.8%) and losses in the Turkish Lira (-3.3%) and Russian Ruble (-0.2%).

The US Treasury yield curve flattened in November (see page 12).  10 year rates closed the month at 2.41%, up from 2.38% at October month end, while 1 year rates widened 19bps during the month.  Investment grade spreads were little changed and high yield credit spreads widened in November (see page 13).

In commodities, the GSCI index was up 1.4% in November (see page 11), with gains in Energy (+3.4%) and Agriculture (+0.5%), and losses in Industrial Metals (-3.2%) and Livestock (-5.5%); Precious Metals were flat.  Within individual commodities, Cotton (+6.3%), Crude Oil (+5.2%), and Palladium (+3.3%) saw the biggest gains, while Lean Hogs (-7.8%), Aluminum (-5.4%), and Live Cattle (-5%) saw the biggest losses.  Gold was up 0.3% for the month.

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