Market Update

The past week marked a brief period for the markets, signaling the advent of the New Year with most markets concluding the week on a significantly higher note. Although market news was sparse, the limited information available carried overwhelmingly positive signals for the upcoming year.
However, it's important not to overlook the challenges faced in the latter part of 2018, characterized by a few tough months marked by market volatility. This volatility was largely unfounded, driven by uncertainty surrounding a handful of political events, namely trade tensions between the United States and China, the trajectory of US interest rates, and the ongoing Brexit saga. Despite this uncertainty fueling market concerns, the underlying strength of quality corporate balance sheets, valuations, and fundamentals in many regions remained robust. The artificial downward pressure exerted on stock markets during this period has now presented enticing opportunities across various sectors.
Returning to the recent week, Federal Reserve Chairman Jerome Powell injected much-needed certainty into global sentiment during a meeting with his predecessors. He emphasized that while the winding down of the balance sheet might seem on 'autopilot,' the Fed's interest rate policy will remain active and accommodating to influence the economy. Powell emphasized a careful approach, indicating that they would consider all "downside risks" before taking any policy action, even potentially reassessing the balance sheet wind down if it posed issues. This assurance acted as a catalyst, leading to a rally in markets and a surge in bond yields, particularly evident in the 3.43% upswing in the US market.
Furthermore, Brazil experienced a boost in confidence as its new President, Jair Bolsonaro, took office. Despite his controversial public image, his pro-business policies and his commitment to combating corporate corruption have instilled optimism among investors, leading to a rally in the Brazilian market since his inauguration.
Internationally, North Korean leader Kim Jong-un reiterated his commitment to denuclearization, extending an offer for further summit talks with US President Donald Trump. This move has alleviated tensions and restored a sense of calm, eliminating a layer of uncertainty from global markets. The details of the potential summit, however, are yet to be decided.
On the corporate front, Apple's CEO, Tim Cook, issued a statement lowering revenue guidance due to an unexpected drop in demand for iPhones in China, causing Apple's share price to plummet by over 9%. This development has signaled a potential shift towards value-oriented stocks, which outperformed their growth counterparts significantly throughout the week.
In terms of economic data, there were minimal releases. Chinese Manufacturing PMI came in below expectations, but the Non-Manufacturing PMI exceeded predictions, aligning with China's transition towards a more service-oriented economy. Additionally, there was a reduction in China's capital reserve requirement, underscoring the government's commitment to stimulating growth. European Core CPI met expectations at 1%, UK Manufacturing PMI significantly surpassed predictions at 54.2%, and US jobs data indicated a tightening labor market, with both average hourly earnings and change in payrolls beating expectations.
In light of the positive steps anticipated in US-China trade negotiations and the factors mentioned above, the potential release of compressed valuations positions investors favorably in the market.