Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
Markets began the year mostly range-bound as investors absorbed the dramatic gains of the prior months and turned their attention to the impending reality of a new US administration. News was dominated with more talk than action but the broad contours emerged of a dramatically new direction in US economic and geopolitical policy – less regulation and more domestically-focused. In response, several companies announced initiatives in the US while others experienced the impact of tweet-induced volatility. Macroeconomic conditions were mostly stable, and monetary policy remained generally supportive despite the US Fed’s bias towards tightening. In the UK, the prime minister outlined a “hard Brexit” with a total and decisive departure from the EU. In Davos, the risks of rising inequality and the downsides of globalization were prominent topics of discussion. Meanwhile, late month bullishness pushed the Dow above the 20,000 level.
The Russell 3000 Index finished the month at +1.9%. At the sector level, Technology and Materials were leaders while Energy and Utilities lagged. US small cap stocks were more muted with the Russell 2000 Index returning +0.4%. Outside of the US, market performance was stronger, partially driven by a weakening in the US dollar which had hit a 14-year high at the start of the month. The developed market MSCI World ex USA Index returned +3.0% while the developing market MSCI Emerging Markets Index returned +5.5%.