• What could move the markets next?
    Stock markets have been more wobbly of late. While the proximate cause was an unexpected deterioration (collapse?) in trade talks with China, many investors were getting nervous even before the most recent barrage of tweets. Some were understandably skeptical of a rally that took U.S. equity indexes up 25% in four months. The skepticism was further compounded by the fact that the rally was entirely driven by multiple expansion, i.e. paying more for a dollar of earnings. Given this dynamic,… Read more »
  • Why under-owned Europe may be worth a look
    We continue to prefer a “barbell” approach to risk taking in the late-cycle stage: quality stocks, income-generating bonds and emerging markets. And there are several investments in Europe worth highlighting. Europe offers attractive asset valuations compared to history, especially in risk assets. Regional assets have cheapened further compared to a year ago as concerns about growth and politics increased. The exception to this are core government bonds, which we believe to be expensive compared to global peers. As downward revisions… Read more »
  • Our take on high yield bonds
    Global high yield bonds sold off amid the latest spike in market volatility, along with other risk assets. Yet this does not change our view that exposure to the asset class is important for fixed income investors in an environment where carry, or coupon income, is becoming the main driver of bond returns. The recent selloff in global high yield is evident in the small upticks in the far right of the chart above. High yield bond spreads – the… Read more »
  • Why volatility could be worse
    With one Sunday afternoon tweet, President Trump reintroduced what had recently vanished from financial markets: volatility.  By Thursday May 9th, the VIX Index, which measures implied volatility on the S&P 500, had reached a four-month high. With a trade deal with China now in doubt, or at least less imminent, investors are reassessing their views on the economy and financial markets. How much worse can things get? To answer that, investors should focus on two factors, which are more quantifiable… Read more »
  • Investors in Europe beware problematic politics
    We expect euro-zone growth to pick up in the second half of this year. But the risks around our favorable base case are considerable – and they are mainly tied to potential political troubles. The UK has bought more time to hammer out a Brexit agreement, but uncertainty remains. There may be renewed escalation of the trade tensions between the U.S. and EU, centered around car tariffs. U.S. President Donald Trump has until May 18 to decide whether to take… Read more »
  • What to make of the volatility spike?
    Market volatility is low until it isn’t, or so the saying goes. We’ve witnessed a volatility spike over the past week, as fading prospects for a U.S.-China trade pact shattered the calm after a prolonged period of low volatility in 2019. We are still cautiously pro-risk, but see the recent episode as a reminder of the potential for volatility to flare up – especially in the late phase of the economic cycle. The market outlook had become more benign this… Read more »
  • Staycation or vacation: 5 summer investing themes
    “Sell in May and go away” is an old maxim for investors. Evidence is mixed on its validity, but given this year’s rally, the temptation now is understandable, particularly given the recent volatility driven by renewed trade conflicts with China. Our take: sure, consider taking some profits and rotating into exposures that offer more resilience if volatility returns. Think of it as the investor version of a “staycation” an opportunity to catch up on chores. But overall, we would not… Read more »
  • The roots of U.S. stocks out-performance
    By most metrics this has been a remarkable year for investors. Stocks are up more than 15%, their best start in decades. Nor is it just stocks. The risk-adjusted return (Sharpe Ratio) on a typical stock/bond portfolio is producing similarly spectacular results. But while the magnitude of year-to-date returns is clearly abnormal, in another sense 2019 resembles the post-crisis norm: U.S. equities are outperforming the rest-of-the-world (ROW). As has been the case in previous years, the out-performance of U.S. stocks… Read more »
  • What women really think about retirement
    Understanding how women think about investing is critical for the future of retirement. Women are on their way to holding the majority of wealth: they are likely to inherit most of the wealth transfer in the coming decades1, they’re the breadwinner (or co-breadwinner) in 60% of households2, they’re starting businesses at twice the rate of men3–the list goes on. In many ways, the future of investing is female. So why, then, did the latest BlackRock Defined Contribution Pulse Survey also… Read more »
  • Our take on first-quarter earnings
    U.S. stock indexes have rallied to new highs in recent weeks. The S&P 500 is up roughly 25% since its December low, fueled partly by encouraging first-quarter earnings results. What does this mean for our view of U.S. equities? We still favor them, as cost-cutting and efficiency gains help moderate the earnings slowdown. U.S. corporate profit margins are holding up, despite rising concerns that today’s low unemployment rate could spur labor shortages — and wage inflation. Attention to these trends… Read more »
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