- As the stock markets tumbled in the runup to the New Year’s Eve, outflows accelerated. There has been a preference for holding cash and secure government bonds, as concerns over Chinese growth and rising interest rates took a toll on investor sentiment.
- For the two weeks ended December 26, mutual funds experienced more than $112 billion in outflows, nearly double compared to the prior two-week period. Data for the last week of the year is not yet available, but monthly outflows are on track to reach a three-year high.
- Equity mutual funds alone saw more than $52 billion in withdrawals over the two weeks ended December 26, with domestic equities especially hit. Outflows from foreign equities were smaller.
- Bond mutual funds saw outflows of nearly $31 billion during the period, with all bond categories suffering withdrawals, with the exception of government bonds, which saw insignificant negative flows.
- An unexpected revenue warning from Apple due to slower sales in China triggered panic in global markets. Investors started to fret that Apple’s woes signaled a falling demand in China overall. However, Apple’s troubles could be self-inflicted, as the company’s products started to lose ground to other domestic competitors, including Xiaomi and Huawei.
- Despite fears of a slowdown, the U.S. job market is humming along. In the last month of 2018, the U.S. economy added 312,000 jobs, the highest showing since March, when the employment figure came in at 313,000. Analysts had expected just 179,000 jobs, while the data for November was revised upward by 21,000 to 176,000.
- Hourly earnings increased by 0.4% in December, trumping estimates of 0.2%, in another signal that wages are rising healthily.
- The unemployment rate rose from 3.7% to 3.9%.
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- Technology stocks (NASDX) had the best start to the new year, rising nearly 6% in the past two weeks. However, they remain down 5.6% for the past month.
- The international bond fund (VTIBX) registered positive performance for the past two weeks, up 0.28%, but was the worst performer.
- Meanwhile, the U.S. bond market (VBMFX) continued to act as a safe haven, being the only riser for the rolling month, up 1.36%.
- The U.S. stock market (VTSMX) posted the weakest performance for the rolling month, down 6.65%.
- Sectors were all up with one exception.
- Fidelity’s retail sector (FSRPX) surged more than 9% for the past two weeks, as its exponents benefited from a strong holiday shopping season.
- Meanwhile, utilities (FKUTX) lost 1.79% of their value, extending monthly losses to more than 5%.
- No sector posted positive performance for the rolling month, as a market rout in mid-December was deep.
- Telecommunications sector (VTCAX) was the best performer with a decline of 1.68%.
- The performance of T.Rowe’s technology fund (PGTIX) remained deep in the red for the rolling month, down 22.5%.
- Latin American equities (RLAIX) were the best performers both for the week and the rolling month, up 8.64% and 3.29%, respectively.
- Emerging markets (VEIEX) were the worst performers with a small gain of 0.53%, largely brought down by the Chinese stock market.
- Indeed, Chinese equities (MICDX) tumbled nearly 11% for the rolling month, representing the worst performance for the period.
Major Asset Classes
- BlackRock’s small-cap stock fund (CSGEX) experienced severe bouts of the volatility of late. While the fund is up 7.7% for the past two weeks, it remains down a staggering 28% for the rolling month. As a result, small caps are the best performers for the past two weeks and the worst performers for the rolling month.
- Managed Futures (EVONX) were the only fallers for the past 14 days, dropping 2.71%.
- Meanwhile, PIMCO’s long-term bonds fund (PEDIX) was up 3.74% for the rolling month, by far the best performer.
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