Equities started the year with strong performance across style, sector, and country groupings; however, there were some exceptions to these gains and also some signs of potential for performance declines. Bond ETF returns were all negative except for international bonds which gained from the dollar decline. These returns are consistent the fundamental story of strong growth and expected higher inflation. There will be peak and valley in return even with the clear story, but the general direction is still risk-on for equities and avoidance of duration for bonds.

Within our style grouping, there was a fall-off in price relative to the short-term moving average in mid-cap, small caps, and value markets based on declines near the end of the month. Global equities, especially emerging markets, were still the style winner for January.












Performance within sectors was more disperse with strong gains in health, technology, finance, and consumer discretionary sectors. The interest rate sensitive sectors, utilities and real estate, declined similar to bond returns. Trends still suggest utilities and real estate should be avoided.












Good gains in Italy, Spain, Brazil and Mexico are consistent with the increases in global growth in emerging markets as well as the eurozone. There should be some concern with future returns in Japan and Canada based on short-term moving averages.









Bond sectors were negative across the board with the only exception being international bonds. The strong global bond performance and the limited losses in emerging markets were associated with the dollar decline. These international bond sectors are often currency return surrogates.










The end of the week saw a sharp sell-off in equities based on the further increase in bond yields. This is a concern especially given the high valuation for many market styles and sectors. Volatility has seen a further spike which suggests there is a growing degree of market uncertainty; however, we are cautious about rebalancing positions on the second day of the month.