Global Markets – 1Q19 Review
Global equities rebounded in the first quarter of 2019, with most market averages posting solid gains. The strong 1Q returns should be taken in context – i.e., the broad-based drawdown in the fourth quarter resulted in a low starting point to begin the year. While conditions are likely not as good as they seem at present, they were clearly not as bad as price levels indicated in December. As we entered January, investors were emboldened by a combination of compressed valuations relative to expected profit levels and a more constructive macro backdrop. On this latter point, two notable positives in the quarter were signs of progress on the trade dispute between the U.S. and China as well as a pivot by the U.S. Federal Reserve from continued tightening to a more accommodative posture. While the market was in flux during late 2018 about the number of rate increases the market may have to digest in 2019, a holding pattern may be the more likely course of action for the balance of the year (with some thinking the next Fed move could be a cut in rates, vs. a raise). We believe the Fed’s pause should also be effective in relieving pressure on global markets as well as curtailing end-of-cycle concerns.
In Cambiar’s opinion, the 1Q recovery in equities results in a fairly valued U.S. market, while international markets possess the potential for incremental upside – given the potential combination of earnings recovery and multiple expansion. One impediment to a re-rating within Europe has been ongoing macro/political uncertainty (although an argument can be made that this is currently reflected in stock prices). On this front, current examples include a slowdown in German economic growth (Europe’s primary engine) and the ongoing gridlock surrounding the U.K.’s exit from the European Union. Regarding Brexit, the inability to reach some degree of majority within Parliament has resulted in an extension beyond the March 29th deadline. Regardless of the eventual outcome – a deal with Europe, a hard crash out of the EU, or another referendum vote – an economic toll will likely be felt on the U.K. economy, as numerous companies are proactively moving to relocate workers and shift jobs across Europe to ensure there is no disruption to their business and underlying clients. Although Cambiar places paramount importance on security selection, country allocations (where relevant) are an additional consideration in the portfolio construction process. Given the ongoing uncertainty regarding the Brexit process, the Cambiar International and Global strategies continue to maintain an underweight allocation to the United Kingdom.
Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness. As with any investments, there are risks to be considered. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.