The mainstream press is agog over the capital market performance in January 2019. “The best January since 1987”, “Best Month in three years”, and “Best Monthly Performance in Decades” are plastered all over as headlines. Yes, the markets had a great month with all major indexes making big moves upward, but lets take the performance within the proper context.
As we all know, December was very weak! Though there were many factors flashing a warning sign, but nothing in the tactical tool box indicated despair and anything resembling a prolonged massive selloff. I believe it was fair to be cautious, but no reason to be risk off. So, it is quite logical to recover from an “oversold” position with a strong move in the opposite direction. Also, I have been a fan of supply and demand aspects occurring in January where most institutions and client accounts get rebalanced to their long term strategic targets; and given the October and December equity drawdowns, it certainly made sense that equities would see a “buy” sign to get back on side.
The Dow Jones Aggressive U.S. Portfolio Index, a 100% equity index including large, medium, and small cap stocks was up +10.20% in January recovering from a -9.97% December; not quite a full recovery, but close. We will see if the market has enough confidence in the new dovish Fed stance and potential for easing of China trade tensions to recover from the October drawdown to approach new highs.