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The decline of the popular volatility measure, the CBOE VIX, from its 2018 peak reading of 36 on December 24th, to last Friday’s reading of 12.8,...



Weekly Market Overview | April 8, 2019

April 8, 2019
By Peter Sorrentino, Chief Investment Officer

The decline of the popular volatility measure, the CBOE VIX, from its 2018 peak reading of 36 on December 24th, to last Friday’s reading of 12.8, would lead you to believe we have returned to the stable homogenous stock market advance of 2017. This could not be further from the truth. Last week, the market turned on a dime as interest rates reversed recent declines and began climbing. This put the cyclical recovery theme squarely back in vogue, as materials stocks led the way with a 4.2% gain. Following close behind were the financials, up 3.5%, which only two weeks ago had faced capitulation in the face of falling rates and fading prospects for regulatory reform. Rounding out the major advances were the telecommunication and consumer discretionary stocks with gains of 3.3% and 3.2%, respectively. Last week, the only declining sectors were the consumer staples, slipping 0.9% on weaker inflation data, and the utilities, notching a slight 0.12% loss on rising interest rates. On the topic of rising interest rates, after putting in a low for the year at 2.4%, the ten-year Treasury finished the week with a yield of 2.52%. Not a massive jump in rates, but it was a quick reversal and a consistent directional move during the week. Global stock price performance had a consistent theme as well last week: smaller is better. In the U.S. equity market, size and performance exhibited a linear inverse relationship as witnessed by the 2.86% gain for the small-cap S&P 600® Index, the 2.78% gain for the mid-cap S&P 400® Index, the 2.06% gain for the large-cap S&P 500® Index and the 1.92% gain for the mega-cap S&P 100® Index. For international markets, it was the MSCI Emerging Market Index advancing 2.55% to the developed market MSCI EAFE® Index advance of 1.92%. Commodity prices were again mixed, as energy continued adding to recent gains with WTI up another 4.9% to $63.08 a barrel and gasoline up 3.9% to $1.9687 a gallon. Apart from iron ore’s 9.6% gain, primarily due to the recent capacity loss due to a dam failure in Brazil, industrial metals fell just over 1% for the week. Agricultural prices saw livestock fall 4%, with grains adding 1.8% as investors await the release of USDA data on U.S. planting patterns.

Last week, we announced a change in our fixed income asset allocation. Looking to capitalize on the recent run up in bond prices and the resultant yield compression between credit quality echelons, we moved to reduce the duration of the fixed income component within our preferred portfolios by just over 10%, along with a reduction in portfolio holdings of BBB and below rated corporate debt. These changes are intended to lock in a portion of the recently-experienced gains, while cutting back on the exposure to rising interest rates and potentially-widening credit spreads. We viewed the events of the first quarter in the fixed income market as an anomaly; one caused in part by the confluence of money moving from stocks to bonds and a dearth of new issuances. We view those isolated events not likely to be repeated during the balance of the year. As such, we felt compelled to take advantage of the situation to improve the risk/reward balance within our client portfolios.

 

For a PDF version of this publication, click here: 04.08.2019_WeeklyMarketOverview

 

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