- After rising 1.5% in December and finishing the year 24% higher, the global equity market roared out of the gate in January climbing 5.5% and notching its best start to a new year since 1994.
- Emerging market equities lead the way, rising nearly 10% before finishing the month up 8.2%. That brings its 12-month return to 41.3%, its best since April 2010.
- With the exception of emerging market equities, volatility edged slightly higher around the globe in January, but remained in a historically low range. The VIX reached its highest level since August.
- In the US, consumer discretionary stocks lead all sectors, rising 9.2% on the month, while interest-rate sensitive utilities lagged as the majority of the yield curve pushed sharply higher.
- The Fed left its interest rate unchanged at its Jan. 31 meeting, but noted that, “Inflation on a 12-month basis is expected to move up this year and to stabilize around the committee’s 2 percent objective over the medium term.”
Managed Risk Investing
- Low equity-market volatility meant that the S&P 500 Managed Risk Index, which has an 18% vol cap and no fixed allocation to bonds, maintained a 100% equity allocation for the eighteenth consecutive month. It matched the return and volatility of the S&P 500 during the month while rising interest rates helped it outperform a 70/30 stock/bond* blend by 212 bps, but with higher volatility.
- Over the last 10 years, the Managed Risk Index has exhibited a slightly lower average monthly volatility than a 70/30 blend, while generating an average excess monthly return of 21 bps.
- Already down 8.5% in 2017, the US dollar fell another 3.4% in January, its largest monthly decline in almost two years.
- The spot price of crude oil climbed again in January and now sits 41% higher than it did just five months ago.
- Likely due at least in part to the weakening dollar and rising oil price, bond-market inflation expectations have risen to a three-year high.
*As measured by the S&P 500 Index and the S&P US Aggregate Bond Index.
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