Elkstone Investment Services Monthly Bulletin

Investment Services January 2020


Paul Gorman, Portfolio Manager


Improved earnings growth expectations provide a positive backdrop for global equity markets in 2020. Valuations are now back in line with historic averages following the significant re-rating in 2019.

Paul Gorman is Chief Investment Officer at Elkstone


The Market – Latest Dynamics 

2019 was a great year across all asset classes, and 2020 has also started strongly for global equity markets. Last year, economic activity and asset markets moved in opposing directions as earnings growth flatlined and world GDP sank to below trend. The chart below shows the US Conference Board Leading Economic Indicator (White Line) and 12-month Trailing Earnings-per-Share for the S&P500 (Blue Line) both of which peaked at the end of 2018. Despite this, global equity markets completed one of their best years. The S&P 500 rose +0.91% in December for a full year return of +31.44%. Similarly, during December, the Eurostoxx 50 was +1.12% bringing its 2019 gain to 24.78% and the MSCI Asia Pacific gained +2.24% completing a +18.64% return for 2019. Global bond markets were also strong in 2019 posting returns of +6.84% with Commodity indices registering similar performance.

Source: Bloomberg

Market Performance Returns – EUR (€) Denominated
Name Year to Date (YTD) Trailing 30D (T1M) December Return FY 2019
EUR (€) EUR (€) EUR (€) EUR (€)
Elkstone Global Equity Strategy +2.66% +1.76% +1.22% +28.09%
db x-trackers MSCI AC World ETF +0.71% +0.36% +1.69% +30.15%
U.S. – S&P 500 +2.35% +1.65% +0.91% +31.44%
Europe – Eurostoxx 600 (0.43%) (1.35%) +2.06% +23.16%
Gold +4.27% +4.73% +3.64% +18.31%
WTI Crude Oil (11.28%) (4.85%) +2.91% +5.44%
Source: Bloomberg, 27th January 2019
Elkstone Observations

The robust equity market recovery in early 2019 from the sharp weakness in Q4 2019 emanated from the reversal of global monetary policy which was further validated by three US interest rate cuts in H2. Market sentiment was dominated by the ebb and flow of progress in US/China trade tensions and the year closed with optimism that worst case scenarios had been averted. A mixed picture from macro-economic releases with persistent weakness earlier in the year was replaced by a stabilisation in US and Europe in Q4. The emphatic general election result and (near term) clarity on Brexit produced a significant relief rally in UK equities particularly those most sensitive to domestic activity.

As we start 2020 we should expect renewed growth in terms of the global economy and earnings but moderation in terms of monetary policy, multiple expansion and asset market returns. Headwinds from trade and manufacturing should dissipate while monetary policy will remain accommodative and economic momentum should improve with growth returning to trend by mid-2020. Downside risks are fading, but a renewed bout of trade tension and further weakness in China are key factors to monitor in 2020. If the global economy re-accelerates, equities should rise, although higher starting valuations might limit the extent of the upside. In this scenario, government bond yields should also move higher, rather than fall as they did in 2019. However, if growth continues to slow and profit pressures cause companies to cut jobs, then 2020 could be another good year for government bonds, and a more challenging year for equities and credit. The ongoing US/China trade issue, Brexit trade negotiations and the forthcoming US election create the potential for higher market volatility in 2020.

Equity returns in 2019 were entirely driven by valuations which are now back in line with their long-term average (Red Line). The chart below shows the S&P500 index (White Line) and the Price/Earnings multiple (Yellow Line). A modest, mid-single digit rise in earnings in 2020, combined with typical dividends, would suggest upper-single digit global equity returns even without any heroic assumptions on margins or valuations. Headline revenue growth still favours the US but were global economic data to pick up more strongly it is likely that the more cyclical markets in Europe, Emerging Markets and Japan with attractive starting valuations would be beneficiaries.


Source: Bloomberg

Notable movers – Trailing 30 Days – EUR (€) Denominated Returns
Positive Performers
Positive Performers Trailing 30D (T1M)
EUR (€)
Uber Technologies Inc. +22.16%
Lennar Corp +22.00%
Hubspot Inc. +17.13%
L3Harris Technologies* +11.91%
Veolia Environment +11.31%
Negative Performers
Negative Performers Trailing 30D (T1M)
EUR (€)
K+S AG (26.24%)
Cineworld Group PLC (15.41%)
Freeport-McMoran Inc. (15.06%)
Lyondellbasell (12.50%)
United Airlines Holdings (10.81%)
Source: Bloomberg, 27th January 2019


This monthly marketing report should in no way be relied upon or substituted for the exercise of independent judgement. Elkstone has taken all reasonable care in the production of this material, but nothing in this note should constitute investment advice in any shape or form. Nor should it be perceived as giving accounting, tax or legal advice. This report is produced solely for educational purposes only. Individual circumstances differ, and readers should not act upon this content in any way. Readers should consult with their independent and regulated professional advisors before making any financial decisions. Prices can fall as well as rise, and may be subject to sudden and sharp moves. If you invest in the stock or other markets you may not recover the total amount originally invested. Historic performance in no way guarantees or indicates future price performance. Further risks to be aware of include currency and exchange rate fluctuations, which may also adversely impact your holdings. The educational information and opinions presented in this report were obtained or derived from sources that Elkstone deems to be reliable, but Elkstone or its related parties (employees, consultants, management, and directors) makes no representations or warranty, express or implied, as to their accuracy or completeness or correctness. Therefore Elkstone accepts no liability for loss arising from the use of the educational material contained within this newsletter.