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14 Facts About Markets in 2019

Traders Magazine Online News, January 22, 2019

Nicolas Colas

The following is a reprint of a prior commentary originally published by Nicolas Colas, co-founder of DataTrek. 


We’ve been fans of the Harper’s Magazine “Index” for decades. This monthly list of factoids has a way of both cutting through the clutter and giving a few quotable anecdotes perfect for cocktail parties and deep conversations alike. A few examples from their February 2019 edition (link at the end of this section):

Average number of photographs and videos that English parents post online of their children by age 13: 1,300.

Portion of Americans who believe another world war is likely: 2/3.

Percent increase in the number of job postings with the title “Rock star” since 2014: 205. And the same statistic with the title “Ninja”: 453.

We cannot cast as broad a net as Harper’s, but in the spirit of giving you a useful summary of where capital markets sit today we pulled together 14 points for this note.

First, some data about global equity performance for 2019-to-date …

#1: Year-to-date return for global equities: +3.9% to +4.0% in dollar terms, depending on the index. The MSCI All-World is the first statistic; the FTSE Global All Cap is the second.

#2: YTD returns for non-US developed economy stock markets in Europe, Asia, Far East (MSCI EAFE): +3.3% in dollar terms. The Nikkei is 1.7% higher YTD, the UK FTSE 100 +2.8%, the German DAX +3.1%, and the French CAC 40 +1.1%.

#3: YTD returns for MSCI Emerging Markets stocks: +4.3% in dollar terms. The Shanghai Comp is +2.4%, the Hong Kong Hang Seng is +3.2%, and the South Korean KOSPI is +1.7%.

#4: YTD for US stocks: 3.6% (S&P 500), 5.1% (NASDAQ), and 7.3% (Russell 2000).

Our take: global YTD returns for dollar-based investors look quite good, but you can thank the greenback’s 0.8% slide in 2019 (using the DXY) for making non-US equities look better than domestic stocks. Most major international markets are not actually outperforming US equities in local currency terms, as noted in the points above.

…And a few points about US bond returns:

#5: YTD price change in +20 year maturity US Treasuries: -0.5%. We use the TLT exchange traded fund to track this.

#6: YTD price change in 7-10 year maturity US Treasuries: -0.03%. “IEF” is the symbol we follow here.

#7: YTD price change in 1-3 year maturity US Treasuries: -0.01%. “SHY” is the symbol here.

#8: YTD price change for investment grade US corporate bonds: +0.82. “LQD” here.

#9: YTD price change for high yield US corporate bonds: +3.4%. “HYG” here.

Our take: shorter Treasury maturities have been the place to be (we still like them) and high yield corporate spreads have rallied much more than investment grade. Since December 31st, junk spreads have come in 79 basis points versus just 5 for BBB or better paper. A better tone in equity markets has helped junk bonds quite a bit; HYG’s YTD return is not much different than the S&P 500 (3.4% vs. 3.6%).

… And lastly global bond yields/US inflation and recession indicators:

#10: US 10-year Treasury yields sit at 2.70%, higher than:

UK 10-years at 1.29%

German 10-years at 0.18%

Japanese 10-years at 0.008%

French 10-years at 0.66%

Australian 10-years at 2.30%

#11: 5-year US expected inflation, based on TIPS breakevens: 1.65%. This is well off the May 2018 highs of 2.15%.

#12: 10-year US expected inflation, also based on TIPS breakevens: 1.81%. The May 2018 highs were 2.17%.

#13: The difference between 2 and 10 Year Treasury spreads: 15.6 bp. While this is modestly higher than the December 11th lows of 11 basis points, the yield curve is still flatter than any point from the 2008 Financial Crisis to November 2018.

Our take: while US/global equities have shrugged off some of the “2019 recession” narrative (as shown by their YTD rebound), bond markets are not so sure. Expected 5 and 10 year inflation is now well below the Fed’s 2% target. The yield curve remains exceptionally flat. And the low interest rates on offer around the developed world once again seem to be holding sway over Treasuries, even as the Fed continues to shrink its balance sheet.

We don’t want to give you a 13-point list (no sense in tempting fate), so here’s a standalone point:

#14: The amount of capital redeemed YTD by US ETF investors from domestic stock funds: $4.3 billion. Keep in mind that US stock ETFs have averaged $14 billion/month of INFLOWS over the past year. The redemptions so far in 2019, in the face of a nice rally, shows investors have not quite forgotten the recent volatility.

Source: Harper’s list:

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