CTA Investment Programs – February 2018

As we head towards the end of the first quarter of the year, the equity markets reveal a different picture. For the first time in 5 years non-US equities have outperformed US stock markets. A trend had developed in the equity markets bolstered by a weaker dollar, and a stronger economic backdrop. CTA investment programs seeking these market trends have benefited. On a macro level the outlook for global markets is pushing towards steady growth. This growth trend combined with low inflation creates an accommodative scenario for easing monetary policies. Consequently with the support of a market trend, global expansion is expected to continue to rise. The impact of this expansion may lead to increases in market volatility as policy makers’ shift from monetary controls.

Increasing Global Expansion

A potential obstacle that can hinder or limit global expansion stem from China’s less supportive policies. Depending upon the US economy being the engine to drive continued growth has its limitations. Even though the US economy is expanding on positive macro data, the current business cycle is maturing. Additionally, a shift towards global monetary policy normalization is likely to reduce market liquidity. This liquidity growth across asset classes is essential for continued expansion. Therefore weighting an investment portfolio with a prioritisation on diversification is paramount. Under the current market fluctuations, CTA investment programs must be responsive.

Return of Volatility

Since the start of 2017 the equity markets developed a steady upward trend. The slipover from the stock markets to other assets classes drove financial markets higher across the board. As the equity markets pushed to all-time highs in certain countries volatility slowly increased. Investor we weary of a potential market correction that could undo the returns gained over the past year. In the beginning of February volatility returned abruptly. In fact it had been at least three years since we saw volatility spike to these levels.

This was the period when markets were concerned about the strength and stability of China. Over the next few weeks the price of risk assets fell back drastically. However, a swift recovery did recoup some of the early losses as investors bought on dips. Resultantly, the market correction was relatively well contained. This was also partially due to strong macro-economic data that aided in supporting risk asset prices.