Market Monitor: January Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Global stocks race to strong start in 2019: S. stocks led global markets to their best January in over 30 years as investors welcomed a pause in interest-rate hikes, signs of progress in U.S.-China trade-war talks and renewed confidence about the economy. The 47-country MSCI All Country World Index rose 7.9 percent, the best start to a year since the index began in 1988. The S&P 500 Index bounced back from its worst December since 1931 with an 8.1 percent gain for its best January since 1987. Small-cap stocks and U.S. real-estate investment trusts fared even better, returning over 11 percent.
  • Fed puts rate increases on hold: The Federal Reserve signaled it will stop raising interest rates for now after two years of steady increases that heightened pressure on the economy and markets. The statement at its January meeting represented an about-face from December when the Fed boosted rates for the fourth time in 2018 and penciled in two more increases for this year. Chairman Jerome Powell characterized U.S. economic growth as “solid” but said the case for raising rates has weakened amid slowing growth abroad and the possibility of another government shutdown.
  • Record shutdown ends: President Donald Trump reopened the federal government January 25th after the longest-ever shutdown but said a second closure is possible starting February 15th if Congress fails to fund a U.S.-Mexico border wall. The economy lost $6 billion during the 35-day shutdown, according to the S&P Global Ratings agency. U.S. GDP in the fourth and first quarters will be affected but the overall impact of the shutdown is likely to be muted.
Selected Market Returns

market monitor

Sources: Morningstar, Altair Advisers
Key Takeaways
  • Markets’ ongoing recovery from the fourth-quarter downturn is further evidence that the sell-off was overdone as negative headlines temporarily overshadowed solid fundamentals. We believe economic conditions remain favorable for higher-risk assets.
  • The Fed’s turnaround in calling at least a temporary halt to rate increases removes for now a major concern coming into the year. The prospect of a “Fed put,” while not as important as continued economic growth, can provide a tailwind for markets for the first half of 2019.
  • The U.S.-China trade war continues to be an investment risk in the short term. The increasing political and economic incentives for both Presidents Trump and Xi to reach a deal, however, lead us to believe that at least the framework of a deal is likely sooner rather than later.
  • Key indicators so far in 2019 confirm the U.S. economy is on solid footing, with particularly strong readings from the labor market and manufacturing as well as double-digit corporate earnings growth (15 percent) for a fifth straight quarter. A recession this year is unlikely.
  • Two asset classes that took overly harsh blows in the late 2018 sell-off, U.S. small-cap and emerging-market stocks, offer particularly attractive valuations even after the January rebound. Where appropriate, we plan to overweight these categories.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice