Market index returns

Week to date since January 29, 2025 as of February 05, 2025

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

Market commentary: 

Global equity markets had a good start to February despite a shifting frontline in the tariff war. Equity performance leadership shifted to Europe from the U.S. with investors possibly distracted by Trump’s shock-and-awe arrival. The performance stumble tripped by U.S. President Trump levying tariffs on Canada, Mexico, and China was quickly overcome after a one-month implementation delay was negotiated for North America. China counter-punched the U.S.’s 10% tariffs with its own import levy on agricultural machinery, fossil fuels, and certain vehicles. Global leaders braced for where the next tariff hit could land. Clarification of the immediate impact will take some time as trade flows could be pulled forward ahead of the one-month deadline and inventories might have been pre-stocked in January in anticipation of the tariffs.

Among other indicators we track the VIX, an index of expected S&P volatility, fell 5% to 15.8. U.S. inflation breakeven yields rose 5 basis points (bps) for the 5-year segment, and 1bp for the 10-year segment. The U.S. dollar weakened marginally, ending at 107.6 for the DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads widened 3bps while high yield spreads widened 5bps. Gold prices were also up, climbing ~ $108 to $2,867 as investors factored in potential tariff disruptions. Oil prices fell 2% to $71.03/barrel after digesting potential adjustments to the global supply and demand mix. Taken as a whole, these themes suggest a bid for safe-haven assets and pricing in a higher probability of stagflation conditions.^[1]

Against this backdrop, the Real Assets markets outperformed Global Equities. Global Real Estate Securities led the way, with the U.S. leading the way despite weakness in the Hotels and Timber segments. Outside of the U.S., Canada outperformed other regions, followed by Europe ex-UK and the UK. Securities in Asia ex-Japan and Japan posted negative performance, while those in Australia lagged the broader market. Commodity Futures also outpaced the Real Asset Index with strength from Precious Metals (Silver, Platinum, Palladium, and Gold), driven in part by safe-haven demand. The Industrial Metals, Agriculture, and Energy segments lagged the broader commodity market despite positive returns, while Livestock performance landed in negative territory. Copper performance was driven higher on tariff concerns given the U.S. imports a large share of its copper consumption. The Global Infrastructure sector trailed the Real Asset index, as did U.S. Treasury Inflation-Protected Securities (TIPS) and Natural Resource equities. Regionally, within Global Infrastructure, Europe (UK, Utilities, and Transport) outperformed the Americas and Asia Pacific, despite the Japanese Infrastructure segment landing in the top performance slot. The Americas was held back by negative performance in the Latin American Airports and Americas Rail segments. Performance themes in Global Natural Resource Equities followed the underlying commodities as companies in the Metals & Mining and Energy segments outperformed while Agriculture companies lagged. Precious outperformed Bulk and Base Metals & Mining with Steel bringing up the rear.^[1]

Why it matters: Volatility and uncertainty are expected to remain fluid. While trade uncertainty has risen, regulatory and tax uncertainty has likely fallen for U.S. businesses. Diverging central bank policies, potential trade wars, and new administrations with changing priorities should keep investors on their toes in the coming months. We believe that real assets should play a role in investors’ portfolios, as they could potentially benefit from the risk/return profile in a variety of economic and market conditions.

Macro Dive: This week, we will touch on jobs and sentiment data in the U.S. and political trends in Germany.

• Good enough:  Nonfarm payrolls in the U.S. rose 143k in January, which was below expectations of 175k. However, the two-month net revision saw jobs jump 100k after being initially reported as down 8k. The monthly average for 2024 was also refreshed to show that job growth was only averaging 166k per month, versus initial estimates of 186k. Average hourly earnings accelerated from the prior monthly reading (0.5% vs. 0.3%) and exceeded expectations, while the prior year-over-year print was revised up to 4.1%. The overall picture is a job market that is still growing, but not fast enough to generate significant inflationary pressure. Nonetheless, hourly earnings should be monitored as it could feed future inflation. The bond market response was lower expectations of further rate cuts by the FOMC through year end 2025.

• Sentiment and Supply Management:  The S&P Global US Composite PMI rose to 52.7 for January, which was ahead of expectations of 52.5. The increase was driven by stronger manufacturing reading as service readings grew at a slower pace. The Institute of Supply Management (ISM) gauge of manufacturing moved into expansionary territory, hitting 50.9. Contrarily consumer sentiment indicators moved in the opposite direction as the University of Michigan Sentiment index fell to 67.8, which was down from 71.1, and below estimates. Both current conditions and expectations surveys for U. Michigan also weakened by a similar magnitude, while one-year inflation expectations jumped a full percentage point to 4.3%. It remains to be seen if higher PMIs will translate to higher business activity in the coming months.^[2]

• The second fall of the Berlin Wall: 35 years after the fall of the Berlin Wall, which paved the way for German reunification, the call for a new wall gets louder these days. The clamor is not for an actual wall but a political wall, the so-called 'Brandmauer' (firewall) between democratic and far-right parties. Migration has triggered dissatisfaction in Germany, as well as other countries, leading to higher support for further-right, and far-right, politicians, and ideology. Recent violence in the country, committed by migrants or alleged radicalized people, led to further questioning of German immigration policies. The 'AfD' ('Alternative for Germany') capitalized on this sentiment to build political power and have a seat at the table. 

Real Assets, Real Insights: This week we will look at industrial REIT activity, energy demand beneficiaries, and the rising costs for a cup of Joe.

• Industrial-sized growth (Real Estate): Sales of industrial properties had a strong second half of 2024, leading to an increase of 16% for the year. This followed two years of weaker trade metrics. In the year, roughly $62 billion of deals for 2,385 warehouses were closed for properties sized at least $25 million in value. This was up from $53.6 billion in 2023 for 1,673 properties. Professionals are hoping that 2023 will mark the low for sales as supply is down and capital, both debt and equity, is starting to accumulate and buyers are optimistic for the medium-to-longer-term outlook.^[3]

• Feed me (Infrastructure):  Electricity demand in developed markets is ramping up after two decades of slow growth. As we’ve discussed previously, this is partly due to increased demand for digital infrastructure such as datacenters, and further electrification of transportation and industrial production. One beneficiary of that trend has been GE Vernova, which was spun-out of GE and focuses on designing, manufacturing, and delivering electric power systems. The rise of AI and the general demand for datacenters has accelerated the need for additional power generation and distribution. The company has recently announced several nuclear power deals as a low carbon, always on, option for electric generation. An old analogy would be that the company is leveraged to the boom by selling pickaxes to the prospect miners looking for gold.^[1]

• Café Grande (Commodities): The price of coffee for consumers is expected to increase in the coming months given the strong performance of coffee futures over the past year. Futures have roughly doubled over the past year for higher-end arabica beans as poor weather conditions have hampered the production season, threatening already tight supplies. Demand in higher-income countries has already slowed demand in major markets and taken the bloom off growth rates in lower-income countries. The recent rally was partly attributed to speculation given the lack of clarity on supply from destination and origin countries. The clearest picture of supply is from exchange-monitored warehouses.^[1]