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Digital Subscriptions > The Hedge Fund Journal > Issue 138 – Jan 2019 > Man FRM Early View

Man FRM Early View

December 2018

Markets

Christmas and the New Year tend to bring out the extremes of people’s behaviour. Overindulgence on food and drink over the festive period is offset by the purgative resolutions of exercise and sobriety in early January, before we all abandon such hope of change and revert to our normal selves a couple of weeks into the year. Equity markets had a rather longer window of binging on loose monetary policy, before the fourth quarter of 2018 provided some ‘P/E Multiple’ cleansing, culminating in the worst December return for the S&P 500 Index since 1931.

For all the bluster in October and November, US equities were only down 5% through the quarter coming into last month. With cyclically-adjusted valuations still close to record highs and a higher level of ambient volatility to price into the risk premium, it appeared that the rational direction for markets to travel into the end of the year was surely down. The only thing seemingly stopping the bears was history, since December is historically the best month for equity market returns over the last 50 years. Well, so much for precedent. After the feast and famine, where do risk assets go from here, and is there a ‘normal’ pattern to resume?

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