Global equities rallied again last week, posting 3%+ gains in most developed markets equity indices. This was the third consecutive week of equity gains, a feat that has not occurred since October 2015. While monthly gains are broadly positive, most equity indices remain in negative territory on a YTD basis. Looking a little deeper into equity market performance, it appears that a changing of the guard in market leadership is forming as Value is outperforming Growth and Small capitalization stocks are outperforming Large capitalization stocks both MTD and YTD. While the performance differential is only about 1% YTD between these style and size factors, recent performance does represent a change from what has been the norm for the last several years.
Following (or perhaps leading) the path of the equity market, commodities continued to climb from the abyss. WTI Crude rose more than 10% last week to $36.22 per barrel, bringing its MTD gain to 7%. WTI Crude is now down only 2.2% YTD, having recovered the majority of a nearly 30% YTD decline as of mid-February.
Given the demand for risk assets, the yields on US Treasuries (USTs) have been rising, though they remain at lower levels than where they started the year. Typically safe-haven assets like USTs will decline in price (rise in yield) when there is demand for risk assets as investors will sell the former to purchase the latter. The yield on the 10-year UST remains below 2% (@1.88%) and the yield on the 30-year UST is below 3% (@2.70%). The lack of movement in UST yields combined with the rise in risk assets, implies investors are doubting the Fed’s resolve to raise interest rates four times this year. As I mentioned a couple of weeks ago, while the market may prove correct in its view, a more hawkish Fed will catch many investors on the wrong side of that bet. This is not a prediction, merely an observation based on market positioning.
Detailed asset class performance data is available here.