Chart-catching - Equity Markets Jan 2016 vs Jan 2017

We look at the very different starts to these years

Three weeks into the New Year, the MSCI All World Index is up 2.15% in GBP terms, which compares favourably to the performance of equity markets over the same period in 2016 where we saw one of the weakest starts in a 100 years (see A Weak Start to 2016 for Equity Markets).

The chart below depicts the performance of the MSCI All World Index in the first 17 days of 2016 (grey) and 2017 (green). The relatively stronger performance of 2017 is courtesy of a pro-business American President, improving global economic data and positive market sentiment, as opposed to the growth scare this time twelve months ago.

Source: Factset

While the above is indicative of market sentiment, most interesting is what drives performance at a sector and factor level.  In January 2016 the best performing sectors were defensives, including Telecoms, Consumer Staples and Utilities, while Financials and Energy de-rated significantly.  By comparison, Consumer Discretionary, Energy, IT and Financials have been the place to be thus far in 2017, indicating a “risk-on” mentality within equity markets.

At an aggregate level, Value tends to outperform Growth in risk-on environments, as investors’ improved expectations for growth feed into expectations of corporate earnings.  This is exactly what we have seen in recent months as shown below.

Source: Factset.  Data from 31.12.15 to 24.01.17

As a house, we have been running a slightly risk-on stance, increasing our equity weights across all mandates in December. This has proved to be a good call to date, benefiting from the Trump reflation theme. While we are conscious that we are 7 years into the business and market cycle, we believe that the proposed corporate tax cuts and infrastructure spending in the US will be good for the US economy and equity market in aggregate.

By James Mee

Risk Warnings

The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions.  The information provided does not constitute investment advice and it should not be relied on as such.  All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

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