2018 Yearend and Q1 2019 Letter and Market Commentary
2018 was a tough and unusual year for investors. It was the year when US corporations had record earnings, yet the market had spiked on volatilities and nose dive to bear market territory in the 4th quarter as the uncertainties appeared.
Strong equity performance continued into 2018. As of January 26th, 2018, the S&P 500 gained 7.55%. Songbird aggregate composite was up 6.84% benefiting from the tailwind of strong investor consensus and confidence in global equities. However, in the following two weeks, the market took a dramatic turn as the S&P 500 dropped precipitously by 10% from its peak before it rebounded above the 2017 yearend level to positive territory for 2018. The return of volatility has been anticipated for a while, however it was unpleasant for a lot of investors, particularly the ones who invested with short volatility funds/ETPs.
US Equities – US equities continue the trend from the first half of 2017 with growth outperforming value, and international outperforming the US. At sector level, Technology had the best performance as of 9/30/2017, returning 27.4%, contributing 45% of the S&P 500 returns, followed by Healthcare, Materials and Industrials, returning 20.3%, 15.8% and 14.1% respectively. Energy and Telecom sectors were laggards, down 6.6% and 4.7% respectively.
US Equities - Overall large caps outperformed small caps, growth outperformed value, and cyclicals outperformed defensives. At sector level, Technology sector led the charge with 12.6% return, contributing 40% of the S&P 500 return for the quarter, followed by Healthcare and Consumer Discretionary with both returning 8.4%. Energy and Telecom sectors were the laggards down 6.7% and 4% respectively. As Songbird’s yearend report pointed out that 17.6% outperformance of US value over growth stocks in 2016 set a stage for growth to outperform value stocks in 2017. For the 1st quarter, investors have witnessed 6% of outperformance of growth over value stocks across all caps US equities.
To describe the first half of 2016 as “dramatic” is an understatement. The global markets went into disarray in the first month of the year with S&P 500 dropped over 11% in 30 days in the wake of Chinese financial regulator’s missteps on the newly implemented circuit breaker rule, then followed by hedge funds’ speculation on possible devaluation of Chinese currency RMB. S&P 500 recovered by over 15% from its February low in the following four months before Brexit, which pulled S&P 500 down by over 5% in two days, then recovered in the next three days. The continued rally in July has pushed S&P 500 to its new high, gaining 7.7% year-to-date as of July 31st.
2016 Market Reviews: The year started with challenges on multiple fronts: fear of China’s hard-landing, continuing decline in oil prices and rising concerns on US recession. Driven by these fears S&P 500 declined by 13.3% between 12/1/2015 and 2/11/2016, eventually fully recovered by mid-March. In late June, Brexit triggered global market reaction followed by a temporarily dip of 5.5% in global equites, which recovered within a week. However, British Pound fell to a 30-year low following Brexit, and further weakened through the end of the year. In November, Trump’s unconventional campaign won him the US presidential election. The GOP’s winning both houses brought enthusiasm for potential changes in tax code and fiscal policies. Both small cap and financial sector, which almost had no return in two years, rallied by over 16% in less than two months. Despite ups and downs of the market, as of 1/15/2017 S&P 500 has rebound by over 22% from its low one year before.