Market index returns

Week to date since January 08, 2025 as of January 15, 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:

Markets had a positive week of performance after starting the year off on the wrong foot. In the United States, inflation data and jobs data, combined with comments from FOMC (Federal Open Market Committee) voting member Governor Christopher Waller, prompted investors to recalculate their timeline for further rate cuts by the FOMC. Investors priced in a full 25 basis points (bps) rate cut by July, versus the previous target of September. Across the other major indicators we track there was not much movement, with the exceptions of gold and oil. The VIX, an index of expected S&P volatility, fell 1.6 to 16.1. U.S. inflation breakeven yields rose 6bps and 1bp for the 5- and 10-year, respectively. The U.S. dollar was flat for the week as measured by the USD DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads were unchanged while high yield spreads tightened 6bps to 271bps. Gold prices rose $34 to 2,696 and oil prices followed suit, rising $6.7 to $80. Oil prices responded to additional U.S. sanctions against Russia that were aimed at an additional 158 tankers used to transport Russian crude oil to market. The tighter sanctions impact flows from the Arctic and the Pacific and could change the supply/demand outlook for 2025.^[1]

Against this backdrop, Real Assets outperformed Global Equities. Commodity Futures led the way on the back of performance in the energy sector, where natural gas gains outpaced the rise in oil prices. Natural Resource Equities followed Commodity Futures with Ag Chemicals leading the way, followed by Developed Oil & Gas, with only Emerging Oil & Gas companies posting negative performance. Within Global Infrastructure securities, the Americas region outperformed while Asia-Pacific lagged. European Communications, LatAm Airports, U.S. oil storage and transport, MLP, and Americas Waste companies led the way. Conversely, Americas Utilities was the worst performing sector as the California wildfires weighed on sentiment. Infrastructure securities in Japan and the rest of Asia also posted negative performance. U.S. Treasury Inflation Protected Securities (U.S. TIPS) also outperformed broader global equity markets. Within Global Real Estate Securities, those in the UK (large cap), Europe (diversified), and Japan (developers) outperformed, while those in Asia ex-Japan (HK REIT, investors, developers), Canada, Australia (growth), and the Americas (data centers) lagged. In U.S. Real Estate Securities, the timber and specialty sectors had the strongest performance.

Why it matters: Investors await the new U.S. administration and the policies it will implement. However, in the meantime, there are still plenty of current events for capital markets to digest, including the impacts of California wildfires, U.S. sanctions, and a potential peace deal between Israel and Hamas which should ease tensions in the region.

Macro Dive: This week, we review inflation metrics, weekly jobs data, and consumer spending, as well as manufacturing data.

• Inflation watch:  In the U.S., December inflation data from the Bureau of Labor Statistics (BLS) came in at expectations for the Consumer Price Index (CPI). However, Producer Price Index (PPI) data came in under expectations, which could signal lower consumer inflation in the future as producer prices typically lead consumer prices. CPI year-over-year (YoY) was 2.9% for the headline and 3.2% for the core measure which excludes food and energy and is a more-closely-followed metric by the U.S. Federal Reserve. PPI Final Demand came in at 3.3%, below expectations of 3.3%, while the core variant, (again, excluding food and energy), came in at 3.5%, which was below expectations of 3.8%. German CPI YoY also came in at expectations of 2.6% but was a touch higher month-over-month at 0.5% versus expectations of 0.4%. As we’ve mentioned in previous editions, inflation was a key topic for voters in several recent elections and remains an important signal as to monetary policy decisions^[1]
• Spending the paycheck:  The U.S. economy relies heavily on consumer spending, which typically requires income from a paycheck for most people. To that point, initial jobless claims from the Bureau of Economic Analysis (BEA) rose to 217k, up from 201k, and above expectations of 210k. The higher claims level was attributed to post-holiday layoffs and the impact of wildfire evacuations in California. Continuing claims moderated to 1859k, down from 1867k, and below expectations of 1870k. The moderation could be due to people falling off unemployment benefit payrolls. Retail Sales data from the U.S. Census Bureau also came in weaker than expected for December but still posted gains over November. However, the retail sales control group, which feeds directly into GDP, outpaced expectations (0.7% vs. 0.4%) and grew the fastest in three months.^[2]
• Widgets: The U.S. Federal Reserve released production data for December, which showed that industrial production grew 0.9% MoM, ahead of expectations of 0.3%. Capacity utilization also grew to 77.6%, up from 76.8%, and ahead of expectations of 77.0%. U.S. economic growth continues to chug along, leading the IMF (International Monetary Fund) to upgrade its global growth forecast to 3.3% for 2025, primarily due to the upward revision of 0.5%, to 2.7%, for its forecast for U.S. growth^[1]

Real Assets, Real Insights: The news item of the week has been the California wildfires. We will look at the potential impacts on apartment rentals, utilities, and timber prices.

• Supply & Demand (Real Estate): The wildfires in California are an ongoing tragedy on a horrific scale, damaging both people and property. As of writing this publication, roughly 180k residents have been placed under evacuation order. These people will need to go somewhere else, which will increase housing demand in a market that was already short on available stock, especially in the rental space. The Southern California region showed favorable metrics for Real Estate Investment Trust (REIT) investors as rents were rising post-covid and supply was limited. The increased occupancy should be favorable for REIT companies in the area, assuming their properties remain unaffected and available.^[1]
• Firestorm (Infrastructure): The California fires also raised questions about the potential impact on utilities operating in the area, triggering indiscriminate investor selling across the utility space. In the wake of previous fires in 2017/2018 the state created protections for investor-owned utilities, including a prudence standard for determining liability and a $21bn fund to reimburse losses. The cause of the fires will be an important factor in how things proceed for utility companies, and the final damage tally could surpass the wildfire fund, which could cause delays in the reconstruction process if companies do not have the capital to replace lost or damaged infrastructure.^[1]
• Timber! (Commodities): The fires also contributed to a speculative rise in the price of lumber futures, although they remain well below their record high reached in August 2022. While it will take a substantial amount of lumber to rebuild (typically at least one truckload per structure) the process will take time to work through clean-up, insurance claims, and a limited labor pool. The threat of tariffs was a greater influence on lumber prices as the U.S. imports a large amount of product from Canada. New tariffs placed on top of existing trade duties would make the rebuilding process more costly, possibly elevating inflation and weighing on economic growth.^[1]