Market Update - January 7, 2020Submitted by Jodi Vleck , Beta Wealth Group on January 6th, 2020
For the week ended Jan 3rd, U.S. equities experienced a mixed open to start the New Year, with optimism over the signing of Phase One of the U.S-China trade agreement being balanced by a negative geopolitical surprise due to the U.S. military action in Iraq that resulted in the death of a well-regarded Iranian general, which unsettled global markets. By sector, Industrials and Energy sectors led the way and were offset by declines in the materials, consumer staples and healthcare sectors.
Foreign equities fared similarly to U.S. equities, with Japan ending the week down in local currency terms but slightly positive when adjusted for a stronger yen which tends to be viewed as a safe haven currency, and European markets experiencing negative returns in keeping with continued weak manufacturing sentiment data. Emerging market equities ended with minimal losses on the week, with sharp gains in Chinese markets following the central bank’s lowering of bank reserve requirements, a stimulative measure.
U.S. bonds ticked higher alongside a risk-off mode following the geopolitical events in the Middle East with long-term rates heading lower by over ten basis points, which benefited treasuries primarily, although all other domestic bond groups including high yield and floating rate bank loans also gained round for the week. Foreign developed market bonds also fared well with modest changes in the value of the dollar, while emerging market debt lost ground.
Commodities ticked slightly higher during the week led by energy as other sectors ended the week either flat or down, with the price of crude oil rising by 2% to over $63/barrel largely on the back of geopolitical tensions between the U.S. and Iran. However, the muted market response stands in stark contrast to years past when such military action would have generally resulted in a more violent knee-jerk response higher for crude prices.