USD January Market Performance

Noteworthy developments

February delivered a retreat from January’s strong start.  Global equities were down 2.9% in USD with the weak performance driven by swift increases in interest rates as inflation data in the US and Europe proved disappointing (in contrast to the prior three months of inflation data) and economic data surprised to the upside.  Investors increased their terminal rate hike assumptions especially in the US and Europe, leading to weaker sentiment for equities.    

Global Equities

Global equities were down 2.9%, with all regions delivering negative returns.  The S&P 500 was down 2.0%, international developed stocks (MSCI EAFE) were down 2.1% and the MSCI Emerging Markets Index was down 6.5%.   US and Intl. Developed stocks were down primarily due to disappointing inflation data and the resulting swift move upwards in interest rates.   Emerging markets declined primarily due to China’s 10.4% February decline as investors took profits following a 50% rally in Chinese equities from Nov 2022 through January 2023.  Globally, growth and value stocks performed relatively closely (-2.5% vs. -3.2%) which was somewhat surprising given the sharp move up in interest rates during the month.  Globally, on a relative basis, technology and industrials sectors outperformed (-0.4% and -1.1%) while materials, energy, and healthcare sectors underperformed (-5.8%, -4.7% and -4.3%).  

Fixed Income

The benchmark US-Aggregate Bond index was down 2.6% on the month.  US Treasuries (65% of the benchmark) were down 2.3% and investment-grade corporate credit (roughly 25% of the index) was down 3.2% as interest rates swiftly increased during the month.  Riskier credit performed better with high yield bonds down 1.3% and leveraged loans up 0.8%.  High yield bonds were hurt by rising base rates while leveraged loans benefitted from rising base rates and high cash coupons during the month.  

Alternatives

The HRFX Global Hedge Fund Index was down 0.5% for the month with most strategies down less than 1.0%.  Global Macro strategies performed best and were up 0.4% for the month.

Commentary

Carlson: -7.7%

Driven by profit taking in emerging markets (MSCI EM down 6.5% on the month) and relatively higher exposure to Chinese internet and consumer discretionary names (MSCI China down 10.5% on the month).

Eminence: -0.8%

With outperformance vs. the MSCI World Index (-2.4%) driven by idiosyncratic performance of underlying positions following earnings releases, especially in software stocks.

Octagon: +1.5%

With strong performance driven by exposure to rising rates, tightening spreads and use of fund-level leverage.