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Many of January’s fundamental market drivers played a major role over the first two weeks of February as the health of China’s economy and the global growth malaise drove many markets deeply into the red. A global supply glut continued to weigh on energy prices with crude oil falling to new multi-year lows, tumbling by more than 20% over the first half of the month to trade at just over $26 per barrel. Large European banking institutions were at the epicenter of the equity bloodletting, with negative rates and falling oil prices driving concerns regarding banks’ exposure to energy sector loans and their ability to meet debt obligations. Safe-haven buying propelled precious metals to new 12-month highs with gold rallying by more than 10% on the month and more than 14% on the year. Dovish rhetoric from policymakers and expectations for additional stimulus pushed bonds higher and yields lower with 10-year Japanese note yields falling below zero for the first time on record. During her congressional testimony, Janet Yellen even suggested that the U.S. central bank would consider negative rates as a tool to combat slowing growth, if conditions should worsen.

The risk appetite turned decidedly positive over the latter half of the month as oil prices recovered all of their earlier losses on news that Saudi Arabia and Russia agreed to freeze oil production at current levels in a coordinated move to counter a slump in energy prices that has pummeled the two respective economies. Equity markets were also stronger, with better-than-expected economic data propelling U.S. equity markets higher and prospects for additional stimulus bolstering European and Asian equity markets. The reversals resulted in a giveback of earlier gains in energies and interest rates, but new opportunities emerged in other markets. The most notable of these came in currencies, as the Japanese yen rallied by more than 7% and the British pound dropped by 4.7% from its intra-month high.

While Traditional Long-term Trend Following managers were profitable in February, with gains in bond markets and energies accounting for most of their overall return, the real story was the performance of short term directional managers. They were able to navigate the turbulent markets and post strong gains in currencies, interest rates and commodities.

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All information is believed to be from reliable sources. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results.

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