1.Performance Based on Valuations Since Dec. 24th Lows.
The first chart below shows the performance of S&P 500 stocks based on their valuations as of 12/24 with the most attractively valued (lowest P/E ratios) stocks to the left and the most expensive (highest P/E ratios) on the right. The best performing decile by far was the one containing the stocks with the highest P/E ratios, and for the most part, performance steadily declined as you moved left towards the more attractively valued stocks. The second chart shows performance since the lows based on stocks grouped according to how they performed during the market decline. Here, the best-performing stocks were the ones that were originally down the most, while the worst performing stocks were the ones that held up the best during the decline.
In both cases, these performance results make perfect sense. During market sell-offs, as investors become more risk averse it is typical to see stocks with the most aggressive valuations sell-off the hardest while more reasonably priced stocks hold up better. However, when the market turns around and investors become less risk-averse, they flock to the more aggressive high growth/high valuation stocks. Likewise, when the market shifts its tone from a defensive posture (during a sell-off) to a more offensive tone (rally) it is only natural that the stocks that held up the best during the defensive phase (like Utilities) underperform during the next more aggressive phase. Anything else would be contrary to the norm.
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1.Aggregate S&P Total Return 12 Months Post-Shutdown.
Without much certainty of a potential end to the political gridlock, we look to factors such as the aggregate S&P 500 index total return 12 months post-shutdown. To receive updates from our Washington Policy Analyst Steve Pavlick & the full team, connect here: http://qoo.ly/uj4xx
I recently watched Springsteen’s fabulous Broadway performance on Netflix, having seen The Boss over 20 times myself, it still was unreal to hear him tell personal stories around growing up and his career. As I watched one of the most volatile stock market year ends in history, I couldn’t help but apply investors psyche to a Springsteen song. Most investors got Blinded by the Light, it was just too easy, buy FANG stocks, buy S&P index, buy anything. After 2017 being one of the least volatile years in market history including no drawdown of S&P over 3% versus historical annual average drawdown of 14%, the market sent a giant wake-up call that investing is always emotional including an all-time record almost 3% Christmas Eve smack down. Here’s the good news, it seems she (market) is going to make it through the night as she always does, it’s not 2008 or anything close, we have some wood to chop in the short-term but valuations are reverting to mean.
2018 was a historic year for financial markets in more ways than one-first time in 27 years that stocks and bonds were both negative in the same year, worse stock market December since 1931, over 90% of investable assets were negative in 2018, and no asset class returned over 5% for the first time since 1974.
A Record Share of Asset Classes Posted a Negative Return in 2018
Investors felt pain this year across the board as diversified portfolios were nowhere to hide, in fact some well diversified holdings returned less than the S&P due to exposure to bonds, commodities, international stocks and U.S. small cap stocks. Three of these groups were down more than the S&P and most bonds were flat to negative. The tradtional 60/40 model was negative for the year with returns coming in 13% below historic median, if you’re 60/40 was global returns were even lower. Target Date funds are popular and growing especially in 401k plans, see below as they are posting first negative returns in 10 years.
Slack investor demand recently lifted to the highest level in more than two years the premium, or spread, that companies with junk credit ratings must pay over risk-free government debt. The corresponding fall in high-yield bond prices last quarter erased investors’ gains in what had been one of the few bright spots in the bond market in the first nine months of 2018.
Junk-rated companies haven’t been completely absent from the debt markets. Issuance of so-called leveraged loans totaled $25 billion in November and December, according to LCD, a unit of S&P Global Market Intelligence. But that was still a significant slowdown from prior months.
Junk-Bond Sale Ends 40-Day Market Drought
Deal follows record dry spell that began in November, suggesting an improving corporate-debt market