US Economy: Underlying strength continues.
GDP growth in the fourth quarter of 2017 (the original estimate) was 2.6 percent, due to an increase in imports. Forward-looking indicators for US manufacturing and consumer confidence, on the other hand, both suggest ongoing increase. Wages increased by roughly 3% in January 2018 compared to the previous year.
US Stocks: A very strong January.
Despite a market collapse in early February, January stock market gains were the strongest since 2016 in anticipation of robust profits, tax cuts, and a steady economy. Tech and discretionary consumer expenditure are both up more than 7.5 percent.
Foreign Stocks: Emerging markets still lead.
Due to robust global growth and stronger EM values, EM equities had a very good January (followed by a decline in early February). Higher oil prices benefited Russia (+12.6%) and Brazil (+16.8%).
Fixed Income: US Treasury yields surge.
The yield on 10-year Treasury bonds has risen to nearly 2.9% (as of early Feb.), the highest level in more than 4 years on expectations for rising interest rates and inflation.
Non-Traditional: Bitcoin down 65% in 2018.
Following a peak of roughly $19,000 in late 2017, the value of one bitcoin fell to around $6,700 as various countries moved to regulate cryptocurrencies.
The Takeaway
What happens in January, what happens throughout the rest of the year? Current market and economic factors point to a good 2018 end. However, we think inflation is a rising risk for both equity and fixed-income valuations. The market dips in early February appear to imply this.
We are essentially maintaining our global stock allocations while adding positions that are projected to profit from inflation, such as commodities and infrastructure. In fixed income, our concentration on methods that are less exposed to increasing interest rates is paying off.
Important Information
Aldwin Callen's wealth management may provide you information about its products and services through this material. The information presented here may not be appropriate for all investors, and there are risks associated with making an investment based on the ideas presented.
This document may contain information regarding Aldwin Callen' brokerage and investment advising services. We encourage clients to speak with their Aldwin Callen representative about the products and services they are considering and to clarify any questions they may have about the distinction between brokerage and investment advisory services, including the obligation to disclose conflicts of interest and act in their best interests.
Aldwin Callen may hold a position for itself or one of our other clients that is inconsistent with the information, opinions, estimates, investment strategies, or viewpoints contained in this paper. Aldwin Callen or its affiliates may maintain a stake in or operate as a market maker in any of the financial instruments discussed herein, or act as an underwriter, placement agency, advisor, or lender to such issuer.
© 2018 Aldwin Callen. All Rights Reserved.