What happened in January?

After a tumultuous end to 2018 devoid of any Santa Claus rally, 2019 began with a positive month for global equities. Increasing worries over a global economic slowdown were offset by generally positive Q4 corporate earnings and Fed policy announcements. Markets responded positively to the Federal Reserve’s less aggressive view towards hiking interest rates, providing a bigger appetite for riskier assets like equities.

Despite the positive month, market volatility has carried over from 2018 as January was not lacking in headlines that perpetuated the uncertainty plaguing last year’s markets. Little tangible progress has been made in the U.S. and China negotiations and unimpressive economic data from second largest economy may imply some increasing pressure to reach a conclusion to the trade dispute. The longest partial government shutdown in the U.S. occurred in January and concluded with only a temporary budget extension. The shutdown could produce slightly skewed economic data in the coming months. The Eurozone was not immune to poor economic data but the region did post gains last month. A Brexit agreement was rejected in the U.K. parliament, which only added to the uncertainty of a conclusion. Emerging markets rallied from a tough 2018 with a positive January. The MSCI Emerging Markets Index was +8.8%.

January by the numbers:

U.S. Equities | S&P 500: 8.0%     

International Equities | ACWI ex-U.S.: 7.6%

U.S. Bonds | Barclays U.S. Aggregate Bond Index: 1.1%

Global Bonds | JP Morgan Global Aggregate Bond Index: 1.4%

Moving into February

In our Q4 newsletter to clients, we referenced that the year-end volatile decline provided an opportunity for a healthy rebound. With a newly-dovish Fed and trade disputes calming, equities experienced their best January in 30 years. Yet, our cautious posture to start 2019 strengthened into February while still capturing the upside market move. Uncertainty still pervades equity markets across the globe and data is starting to point to a global economic slowdown. We scaled to a 39% cash position in our domestic tactical strategies last month largely due to weakening sentiment indicators and technical signals remaining depressed. For the international tactical strategies we remained approximately 75% invested with little change to international indicators. We expect volatility to continue but see little chance of a recession in the near-term.