PERFORMANCE - A quick review of investment assets performance 2019
In this week newsletter edition, you may find a quick review year to date of the principal assets classes results.
In order to keep it simple, I have used frequent used ETF (Exchange Trade Funds) such as SPY, AGG, VEA, and IEMG as a proxy for the asset classes performance.
Since last August, bonds (AGG) rallied. Investors bought them when they perceived global economic outlook was cloudy ahead and caused medium and long term interest rates to drop to historic lows on government securities.
But after markets knew that significant future macroeconomic changes and geopolitical risks changed, such as:
Global central banks (U.S., Europe, and China) seems that will “do whatever is necessary” to extend the current market cycle. Just this week investors got a new European Central Bank -ECB- action plan, which cut interest rates to -0.50% (indeed more negative rates!) and promises a 20 billion monthly purchase of European bonds (Quantitative Easing) until they reach their goals! Or “at infinitum.” The printing machines are on!
A short term reprieve of trade tariffs from a U.S. - China trade conflict and a new trade meeting in October
Brexit may be a delay once more and avoid worst-case forecasts
Hong Kong protest found a peaceful solution
Rumors that there will be more fiscal actions by governments (lower taxes and more government investments)
Investors quickly change their mind; they immediately sold assets such as government bonds, corporate bonds, and gold, and then they bought more risk investments, such as the U.S. and International equity, and High Yield Bonds once more.
This year U.S. equity market index (SPY) performance has reached +20.7%. The rally in September continue its path, so far it has increased +3.6% to reach 3,007 last Friday, September 13th.
The emerging markets (IEMG) index is up +7.4%, and developed markets (VEA) is up +12.5% in 2019. The international equity markets had an impressive recovery this month, emerging markets are up +6% (IEMG), and developed markets (VEA) are up +4.9%. This last month has had most of this year gains.
The U.S. fixed income is up +6.9% (AGG) in 2019, even after the September adjustment, a significant return for a well diversify and broad U.S. bond ETF.
Next week markets will face new variables to ponder, among the most important ones to keep in mind:
On Wednesday, we will have the results of the U.S. Federal Reserve meeting where markets expect another interest rate cut. Also the Japan central bank will inform us of their interest rate decision.
This last Saturday, a set of Yemen’s drones attacked and damaged a critical Saudi Arabia oil distribution facility. This attack may interrupt the supply of about 5 MM barrels per day of production of Saudi Arabia or about 5% of world oil production. We shall expect significant volatility to oil prices in the short term.
From an investor perspective, an investment portfolio should have a balance between assets classes that reflect market cycle economic outlook, the market opportunities, and investor’s objectives and risk tolerance.
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Have a nice week!
- Michele López