Trading volume for the month has been light compared to January, suggesting that many investors continue to watch from the sidelines. Breadth, however, has strengthened unlike the previous five years when the largest market cap stocks were the best performers. We view that as a positive sign.
One indicator that bears watching: asset class correlations have been high, suggesting more indiscriminate buying on the part of investors who may be chasing the rally.
PROTECT: Risk Assist
Volatility expectations moved lower still on the week, with the VIX closing at 13.5 on Friday, its first sub-14 close since October 3rd of last year. Volatility expectations for foreign exchange (FX), interest rates, and commodities have also declined, generally a positive sign.
Still, we live in a volatile world and there are multiple events that are worth monitoring, any one of which could cause this trend to reverse. The known “crises” are by now all too familiar – Brexit and U.S.-China trade – and have perhaps been discounted by the market. But they are joined by others that are just now coming into view, a potential recession in Italy, for example.
SPEND: Real Spend
Bonds have continued to outperform stocks on a trailing one-year basis, but the margin is shrinking. Global equities are now up 11% on the year compared to 1.1% for investment-grade bonds. Over the past 12 months stocks are down -0.5% while bonds are up 3.8%.
Yields on the 10-year Treasury were up slightly on the week, ending at 2.682%. Domestic dividend stocks did well while MLPs declined, in spite of the rising price of oil. Convertible bonds and senior loans were up nearly one percent. The ICE BoAML U.S. High Yield Index was up 0.35% on the week.