Stocks rebound; T-bill yields rise

Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA

Developed MarketsU.S gains traction, Japan and the UK, flat

International developed stock markets in the aggregate gained 2.46%. Europe (excluding the UK) and the U.S. recorded gains of 4.30% and 3.56%, respectively. Japan and the UK equity markets were flat. 2018 year-to-date performance has been mixed so far as investors consider the decreasing benefits of fiscal stimulus and the pullback of central bank stimulus.

Mexico continues its run

Broader emerging markets recorded a gain of 3.32%. Brazil and Mexico posted gains of 11.82% and 8.65%, respectively. China and Korea fell by 2.49% and 1.54%, respectively. Increased U.S. dollar strength and trade tensions have caused higher volatility since many emerging markets are export-oriented. However, relative valuations still favor the developing nations.

Emerging Markets Performance

Global SectorHealthcare shines

Healthcare and industrials posted gains of 6.23% and 4.88%, respectively. Consumer discretionary and energy lagged other sectors. Year to date returns still favor the more growth-oriented sectors such as information technology.

Global Sector PerformanceValue outperforms growth

Value outperformed growth in the large-cap and small-cap space. Momentum recorded a gain of 2.81%. The size premium has been positive so far in 2018. Investing in smaller companies has historically compensated investors for taking on the added risk.

Global Growth Domestic Equity PerformanceForeign Equity FactorsLarge-cap value has a strong month

In the international developed markets, value outperformed growth for the month. Small-cap growth was flat, and momentum posted a gain of 0.89%. Smaller emerging market companies underperformed their large cap counterparts.

Global Growth Foreign Equity Performance

Liquidity ProvidersCash becomes a viable investment option

Money market fund and T-bill yields have steadily risen as the Fed continues to raise rates. With the U.S. equity market near a historically high valuation and tight spreads in the fixed market, investors can finally turn to cash and get paid to wait. The CPI increased by 2.80% year over year, above the Fed’s target rate of 2%. Increasing trade tensions could bring more inflation to the U.S.

cash becomes an investment option

Deflationary HedgesFixed income returns mixed

The returns of deflationary hedges were mixed. Emerging market bonds and high yield recorded gains of 2.06% and 1.13%, respectively. Long-term government bonds and Treasuries fell. Traditional fixed income will face headwinds as central banks continue to tighten and rates rise.

Deflationary Hedges Performance

Inflation Sensitive InvestmentsOil Prices Fall

Inflation-sensitive investment returns were mixed. The Alerian MLP and global infrastructure recorded gains of 6.58% and 1.80%, respectively. West Texas Intermediate (WTI) crude oil and U.S. natural gas were down for the month. Dollar strengthening and rising rates has been a short-term headwind to gold’s return, but the metal may prove to be a valuable portfolio diversifier as the fiscal positions of many developed countries deteriorate.

Inflation Sensitive InvestmentsWorld CurrenciesThe U.S. dollar appreciates

Over the past three months, the U.S. dollar appreciated against most other major currencies. The Mexican peso and British pound dropped the most relative to the U.S. dollar. Over the past year, the euro and Chinese yuan have strengthened moderately against the U.S. dollar.

World Currencies vs US Dollar

Brandon Yee, CFA, CAIA – Research Analyst

Brandon conducts investment due diligence for Versant Capital Management, and designs and implements tools and processes to support the firm’s research. His background in biology and finance help him to look at challenges from multiple angles, resulting in unique and well-rounded approaches and solutions.

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