Spruce Index Returns September 2018
September saw wide dispersion in returns with gains in Japan, S&P 500, U.K. and Developed International stocks up +5.68%, +0.57%, +1.05%, and +0.54% respectively while REITs, Small Caps, Real Estate and Financials declined -2.45%, -2.41%, -2.65%, and -2.22%. Emerging Markets remained under pressure due to trade concerns, rising Dollar costs, and spiking oil prices with the core EM index declining -0.53% paced by India’s -7.15% and China’s -1.97%. Continuing with the theme of dispersion, last month’s EM losers turned out to be this month’s winners with Turkey +9.23%, Brazil +6.82% and Argentina +4.20%. Click to view full Spruce Index Returns September 2018.
In terms of factors, Quality led with +1.84% followed by Momentum +1.42%. Value continues to lag with a modest gain of only +0.32%.
Bonds generally declined with the Barclays Aggregate losing -0.64% on the month and municipals declining -0.48%. TIPS also declined -1.16% as 10-year duration hurt performance while inflation remains muted.
Commodities gained +2.07% led by crude oil +5.67% and copper’s +5.14% rebound on oversold levels. Nevertheless, commodities have generated zero return on the year amidst high volatility.
Credit spreads have remained low encouraging ever more levels of corporate debt. The AAA, BBB, and CCC each are at spread levels below last quarter, year-end, and one year ago.
The U.S. yield curve has stabilized but remains quite low with spreads of 30-40 bps.
S&P 500 12-month rolling volatility has increased slightly after coming off a low in 2017, and both historical and forward looking P/E ratios are at year-end 2016 levels and rising.
Financial conditions in the U.S. and overseas reflect stronger growth in the U.S. and weakening growth in China. U.S. economic surprises have been on a slight upswing since the beginning of September and financial conditions remain supportive. In Emerging Markets; however, economic surprises remain low but still above previous bottoms experienced in 2013 and 2015. Financial conditions are soft but also above the 2015 floor. While Chinese and EM stocks have materially declined on the year, it seems the economy and earnings have more room to fall.