CTA Investment Strategies – December 2017

For the most part of 2017 the financial markets found reasons to trend higher consistently. This was all achieved at relatively low levels of volatility. However would this slow upward grind to new all-time levels continue into the new calendar year? The performances in the final month of the year proved more erratic, but this did not mean that the underlying trend dissipated. If anything in 2018 there will be advisory opportunities again following any moderate selloff. Markets may appear more uncertain in the New Year. Some of the key drivers for growth such; as tax reforms and corporate earnings will have a soften impact. However, the likelihood for continued growth in CTA investment strategies is positive.

The situation in other developed economies such as Europe or in Japan, also points to stronger financial markets. In Europe the political climate should stabilise without any major elections or campaigning to disrupt economic growth. There is only one major question mark potentially negatively impacting growth. This is the timing schedule of the ECB in reducing its monetary easing policies. Any measures in reducing central bank monetary measures too quickly could slow market growth. Therefore by anticipating moderate conditions there is reason for market optimism

Roles of the Central Banks

In 2017 only a handful of central banks raised their interest rates. The Chinese and Hong Kong central banks followed suit from the FED in this regard during December. This is despite the fact that global economic growth has steadily risen, following the financial markets to new highs. During the same 12 month period five of the world central banks surprisingly cut their rates further. Aggregating the positions from the major players (FED, ECB, BOE and BOJ), central bank balances sheets will remain inflated. It will be another 12 months before balance sheets will possibly shrink.

Therefore bearing this in mind, the anticipated equity returns for the next quarter will not be as good as 2017. Expectations on earnings aim to be supported by decent – if still unremarkable – economic growth. Consequently, the depth and opportunities in equities should satisfy many CTA investment strategies for required returns. Yet signal opportunities must be vigilant for signs that growth is not strong enough to justify tightening monetary policies. Judging the central bank rhetoric it will be at least 6 months before any changes will be discussed or contemplated.

Equities end on a High

Stocks ended 2017 with the same optimism that carried the S&P 500 Index to multiple record highs during the year. Tax reform in the US took centre stage during December. Consequently the final approval of a sweeping tax overhaul provided further tailwind for markets. These climbing trends came on the heels of strong economic and corporate earnings growth. December saw broad gains across global equities, capping a solid year for our CTA investment strategies.

Furthermore, US stocks continued their impressive run, reaching historic highs. This was achieved during the final month of the year and therefore posting double-digit percentage gains for 2017. Improved economic fundamentals and currency strength helped international markets. From their internal strengths foreign markets were able to outperform the U.S. during the month and the year. This came with notable leadership from emerging market equities, which rose strongly in December. To top it off the emerging equities posted the largest yearly increase among major asset classes.