Imperium Capital Publication

Viewpoint – February 2018

The pattern in market performance during 2017 of strong equities, rising bond yields and a weakening US Dollar continued into January. Notably the S&P 500 produced its fifteenth consecutive monthly gain, with a rise of 5.7%. Global emerging markets continued to perform solidly, returning 8.3%, supported by the strength of the global economy and a weak US Dollar. Global bonds had a more turbulent month, with yields generally rising.

However, as the month progressed there was a distinct change in markets. Indications of continuing global economic growth, particularly in the US following tax reform progress, began to weigh more heavily on bonds with US Treasuries notably affected. 10 year US Treasury yields had already risen from 2.0% in early September 2017 to 2.4% by year-end, but rose quicker during January to end the month at 2.7%, the highest level for nearly four years. Signs of an inflation pickup, especially in the US where wage growth is rising amidst a tight labour market, heightened concerns that bonds were increasingly vulnerable. Towards the end of the month the sell-off in bonds, which spread from US Treasuries through to the UK, Europe, and somewhat to Japan, began to have an impact on equity markets, which retracted some of their earlier gains.

Viewpoint – January 2018

In December, markets continued to climb upwards, capping off a year of strong returns across asset classes. Risk assets benefitted from accelerating global economic growth and strong corporate earnings. Commodities, followed by equities posted the largest returns during the month. Global equities advanced 1.4% during the month, with emerging markets outperforming developed markets, posting a 3.6% return versus a 1.4% return for developed markets. 2017 was the best year for emerging markets relative to developed markets since 2009, returning 37.3% versus 22.4% for developed markets. US equities rose 1.1%, taking returns in 2017 to 21.1%. 2017 was the first year in history US equity markets posted positive returns for every month during the year. Within developed markets, the UK was one of the strongest performers posting a 5.0% return, while continental Europe underperformed returning 0.2% and declining 0.6% in Euro terms. In emerging markets, emerging Europe outperformed returning 5.3%.