Echoes of 2016
Source: MSCI and Todd Asset Management
Recent market volatility has felt like an "echo" of 2015-16 with many of the same concerns causing heightened fears of deep recession.
Slowing global growth, monetary tightening, commodity weakness and uncertainty over Brexit led to a fear trade that saw Defensive leadership in both episodes. This leadership change occurred despite the fact that defensive sectors were expensive, both relative to history and vs. Cyclical sectors.
Like 2016, we think coming resolutions to many of these concerns should set up 2019 to be better than investors initially feared as trade deals likely get struck, monetary policy becomes unrestrictive, fiscal policy initiatives kick in, a Brexit outcome unfolds and US Dollar tailwinds abate.
Our fundamentally oriented discipline continues to highlight more Cyclical and economically sensitive parts of the market, which are more attractively valued with better earnings growth profiles than their Defensive counterparts. These areas led after the 2016 trough as fears subsided and growth recovered. We think we are set up for a similar "echo" recovery over the coming quarters.
The index used in the chart is unmanaged, and not available for direct investment; they include reinvestment of dividends; they do not reflect management fees or transaction costs: MSCI ACWI ex-U.S. Index is a float-adjusted market capitalization index that is designed to measure the combined equity market performance of developed and emerging market countries excluding the United States. The ACWI ex-U.S. includes both developed and emerging markets. For investors who benchmark their U.S. and international stocks separately, this index provides a way to monitor international exposure apart from U.S. investments.
The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an "as is" basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the "MSCI Parties") expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance. Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2019