Market Commentary - February 2018

So much for a market hangover. Equity markets have roared out of the gate. Historically, January has been a fairly accurate "indicator" as only 27% of the time since 1929 have the market and January parted ways. Of course this doesn't always hold up.

In the past 11 years, the S&P 500 has fallen six times in January and the market only ended down in two of those years. The most recent example was the brutal start to 2016, where markets had there worst start to a year since 1896 and saw the S&P 500 drop nearly 5% in January yet we still ended the year up nearly 10%. Even more eye opening was January of 2009 (global financial crisis). We experienced the worst January in history (-8.5%) but the S&P 500 finished the year up over 26%! There have also been some instances of a strong January that saw the market end the year in the negative. 

Many active fund managers look to sell stocks with losses in December for tax purposes and then rebuy in January, which helps create momentum. While this may hold some weight, there has been a massive shift from active management to passive over the last decade and this could be part of the reason why the "January effect" has become less reliable lately. Also, since 2008, easy monetary policy prescribed by the Federal Reserve has helped push asset prices higher as witnessed by the S&P 500 posting positive returns nine straight years. 

While U.S. equity markets seem to be grabbing all the headlines, foreign markets, specifically emerging markets, continue to outperform which is an encouraging sign for the global economy. The true test comes as the Federal Reserve starts to aggressively raise rates this year and next. This is when we will find out what shape the global economy is truly in.