Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
The momentum from the strong rally in October had already begun to weaken in December, but the decline in markets that started the year was truly breathtaking. By the third week in January, major market indexes were down around 10% or more as concerns grew over weakening economic data from China and concerns that declining oil prices signaled broader global weakness. In fact, oil prices fell below $30 a barrel for the first time in 12 years. Some of the momentum leaders of the prior year (AMZN, NFLX) became significant laggards, falling twice as much as the broader market. Ineffectual market interventions by the Chinese government further undermined confidence. Data in the US was more negative as well with employment statistics showing mixed results, manufacturing struggling as the stronger US dollar weighed, and corporate profits showing signs of decline. Volatility could be found everywhere, and uncertainty was the norm.
While there was some recovery in prices by the end of the month, market performance in January still ended up broadly negative. The Russell 3000 Index finished the month down -5.6% with defensive sectors such as Utilities and Consumer Staples leading while Health Care, Materials, and Financials lagged significantly. US small cap stocks were meaningfully worse as the Russell 2000 Index fell -8.8%. Outside of the US, performance was similarly challenged. The developed market MSCI World ex USA Index returned -6.8%, and the developing market MSCI Emerging Markets Index returned -6.5%.
