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Global Investment Outlook and Strategy

February 10, 2020

U.S. stocks, many of which entered 2020 technically overbought following robust fourth quarter gains, produced mixed results in January, with large capitalization and growth indices outperforming small- and value-oriented counterparts.  Sector outperformance for the month was split between high growth technology stocks and interest rate sensitive bond proxies (i.e., utilities, real estate, staples), whereas the energy sector significantly underperformed on plummeting oil prices.  While the rapidly spreading novel coronavirus (2019-nCoV) could impede a prospective reacceleration in global economic growth and negatively impact supply chains, underlying strength in the U.S. economy and investor hopes for fresh global stimulus have helped buoy domestic equities.  From an economic perspective, the response to the virus is disruptive to global trade.  We believe it is too early to tell just how severe the outbreak will become at this juncture, but it is already worse than SARS.  Under our base case scenario, we expect an eventual slowing in the spread of the virus as treatment protocols are refined, resulting in only a temporary reduction in global economic growth.    Coronavirus-related risks notwithstanding, global monetary easing and the phase one U.S.-China trade deal have set the stage for at least a modest uptick in global economic activity against easier year-over-year comparisons.  However, we expect equity markets will remain volatile, with sector leadership vacillating as investors struggle with ongoing uncertainties surrounding the virus, geopolitics, trade, and the efficacy of easier monetary policy at this stage of the economic cycle.  As a result, diversification and bottom-up stock selection remain key elements of our investment strategy.  Interest rates declined in January, as the Coronavirus dominated headlines and investors struggled to come to grips with the extent of its potential severity.

For more details, including a longer discussion of the outlook for global equity markets in 2020, please see the complete Sit Investment Associates’ January 2020 Global Investment Outlook and Strategy paper. Click here: Global Outlook and Strategy (Adobe Acrobat).

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