Fidelity Bank - Trust and Wealth Management
February 2019 Market Review
William J. Fennie III
After the best January in more than 30 years, U.S. Stocks continued to march even higher in February, rising 3.21%. The Federal Reserve, signaling a pause and a willingness to be patient while assessing economic conditions, helped usher markets higher. Additionally, the anticipation of amicable trade deals between the U.S and China as well as between the U.S. and European Union boosted investor morale.
Despite uncertainty surrounding Brexit, International Developed Stocks gained on the month with the MSCI EAFE Index posting a 2.55% return. Despite Chinese stocks rising more than 16% in February, a strengthening U.S. Dollar, tensions between India and Pakistan over the Kashmir Providence, and political tensions in South America muted Emerging Markets returns. The MSCI Emerging Markets index returned just 0.22% in February.
The patient stance from the Fed helped relax recessionary fears and US Investment Grade Fixed Income markets reflected that in February, with the Bloomberg Barclays Aggregate Bond Index giving back about 6 basis points. Longer dated U.S. Treasuries were the largest detractor, down about 1.16%. Year to date, the Bloomberg Barclays Aggregate Bond Index is up approximately 1.00%.
Since peaking just before Christmas 2018, market volatility, measured by the CBOE VIX index, has fallen by more than 60%. This fall in volatility has helped calm investors’ recessionary fears and pushed higher those companies most sensitive to a volatility. In fact, those companies exhibiting the greatest degree of sensitivity to volatility outperformed those with the least sensitivity to volatility at an exceptionally wide margin in February (+4.44%) as well as on a year to date basis (+10.33%). As fears of a U.S. recession have abated, those stocks most sensitive to the domestic economy have rebounded. U.S. Small Caps were the best performing asset class during February gaining 5.19% and expanding their year to date lead over large caps (Russell 2000: +17.02%, S&P 500: + 11.48%).
U.S. Dollar strength detracted returns from U.S. investors in both Developed Market and Emerging Markets. The MSCI EAFE index returned 3.47% in local currency terms, but only 2.55% in U.S. Dollar terms. The MSCI Emerging Markets index returned 1.10% in local currency, but the conversion to U.S. Dollars reduced that return to just 0.22%.
Patient Federal Reserve language on interest rate policy and the reduction in recessionary fears led to a decline in 10 and 30 Year Treasuries (-0.47% and -1.16%, respectively) as investors reduced their need for safe haven assets. Instead, investors deployed that capital in Investment Grade Corporate and High Yield Corporate bonds, with the indexes advancing by .36% and 1.66%, respectively. A strong U.S. dollar muted what had been a strong start to the year for Emerging Markets Local Debt. While the asset class gained nearly 5.5% in January, it paired that gain with a nearly 1.10% loss in February.
Broad basket commodities built upon their strong January and edged higher in February by 0.52%. Oil continued to grind higher off its December lows (+6.38% in February, +26.01% YTD) and gasoline led commodities in February, rallying nearly 20%. Silver and gold, which are often viewed as the safe haven assets, lost 3.32% and 0.56%, respectively, during the month, as investors redeployed their capital into riskier assets.
February 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large?cap segment of the U.S. equities market.
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