January 2023 | Global Equity Markets Review
The U.S. equity markets were quick to say goodbye — and good riddance — to 2022 and started the new year off with the strongest January return since 2019 — ranking 9th best since 1957. The S&P 500 Index total return was 6.3%, while the Mid Cap 400 and Small Cap 600 returned 9.2% and 9.5%, respectively. Cyclical stocks outpaced defensive stocks as concerns receded over an impending economic downturn. A strongly rising market also portends a return to risk, as evidenced by growth-stock indices exceeding value-driven benchmarks. Unlike December, which finished near the low of the month, positive momentum carried throughout January with indices closing at highs for the month.
Crosscurrents can prove hazardous for boaters caught unaware of the conflicting patterns in the movement of water. It is an apt metaphor for the perplexing economic data impacting the financial markets. The near-term direction of the economy is under much debate and is understandably a significant factor in the outlook for the stock market. As indicated in the chart below, the strong bounce in January cannot be ignored as a predictor of the rest of the year. Last month was the 13th time since 1957 that the S&P 500 Index rose by at least 5%. What followed in ten of the previous twelve periods was an up period for the remainder of the year with a median eleven-month return of 17.4%. Fighting against a repeat of this compelling history are earnings estimates for 2023 which are more than 10% from the mid-June 2022 high and continue to decline as 4th quarter earnings reports are released. There is no shortage of additional conflicting data on the economy and the markets as we begin 2023 on a high note. Market volatility can be expected to continue this year until the economic currents become relatively predictable.
Global equity bourses followed the strong upward move in U.S. stocks during January. The S&P Global BMI ex-U.S. total return in January was 7.8%, with both developed and emerging market returns easily besting the U.S. return at 8.3% and 6.7%, respectively. This excess return for January by international stock markets was the third consecutive month of outperformance. The U.S. Dollar Index declined 1.4% in January — aiding overseas holdings for U.S. investors. Weakness in the dollar over the past four months is based on the perception that the Federal Reserve is ahead of other major central banks in the fight against inflation and an eventual easing in monetary conditions. The jury is out on whether markets will win out over statements by Chairman Powell and other voting members of the FOMC who maintain a raise-and-hold philosophy on the near-term path of short-term rates. Diversifying into international stocks has proven to be a useful hedge against currency volatility which we expect to continue in an environment of diverging global central bank policies.
Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 1/31/2023 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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