What a year - 2020! The market achieved record highs near year-end despite a collection of intertwined seismic events during the period - the worst global pandemic in a century, resulting in profound changes in our way of life, massive reactive policy shifts, presidential election controversy, warp-speed medical innovations, the most rapid materialization of a bear market on record, and among the largest and most rapid market recoveries in history. Yet, with the recent development and distribution of vaccines, accommodative and stimulative policies around the globe, and the likelihood of a divided US government; there looks to be light at the end of the tunnel and the prospects for global economic recovery appear to be on the upswing setting the stage for a constructive and hopefully more normal 2021. While the market ended up for the year, 2020 was marked with intense volatility. Reacting to the most profound health crisis in a century, the year featured the onslaught of the most rapid
We have entered a new investment order. The Covid-19 pandemic has accelerated profoundshifts in how economies and societies operate. We see transformations across sustainability, inequality, geopolitics and macro policy. This is reflected in our 2021 investment themes: The New Nominal, Globalization Rewired, and Turbocharged Transformations. The new investment order is still evolving, and investors will need to adapt. Yet the features are becoming clear, and we believe this calls for a fundamental rethink of portfolio allocations starting now. The New Nominal We see stronger growth and lower real yields ahead as the vaccine-led restart accelerates and central banks limit the rise of nominal yields even as inflation expectations climb. Inflation will have different implications to the past. Strategic implication: We underweight government bonds and see equities supported by falling real rates. Tactical implication: Our low rate outlook keeps us pro-risk. We like U.S. equities and prefer
Many positive signals appeared in the quarter. Millions of Americans went to work again; monthly net job growth topped 1.7 million in July and 1.3 million a month later. Unemployment, which had hit 14.7% in April, fell from 10.2% in July to 8.4% in August, and the U-6 rate counting both underemployed and unemployed Americans declined from 16.5% to 14.2%.1,2 Consumer confidence, as measured by the Conference Boards monthly index, leaped to 101.8 in August from 86.3 in July. Households kept up their buyingretail sales were up year-over-year through August even though supplemental unemployment benefits expired at the end of July.1 Industries also grew, according to research from the Institute for Supply Management. When ISMs Monthly Purchasing Manager Index for the manufacturing and services sector surpasses 50, those sectors are judged by ISM to be expanding. ISMs services PMI was at 58.1 in July and 56.9 in August; its manufacturing index reached 54.2 in July (a month that saw a 6.4% rise
Summer is here: Making lemonade out of lemons The great poet Ralph Waldo Emerson famously wrote, Do what we can, summer will have its flies. As we head into the summer months, this mood may best describe nervous investors who recently experienced large bouts of market volatility due to the spread of the coronavirus. The SP 500 Index fell 34% from its all-time high reached on February 19 to its low on March 23. While it has recovered since then, we are seeing global economic activity reflects the implementation of mandatory shelter-in-place policies. Simultaneously, extreme moves in the oil market with West Texas Intermediate (WTI) oil futures prices at one point trading in negative territory due to fears of oversupply caused additional distress in markets. Globally, central banks and governments stepped up to provide unprecedented levels of stimulus measures on both the monetary policy and fiscal fronts. We see three investment implications from this stimulus. First, we would like
The COVID-19 virus has made a brief global recession likely. While the duration of the virus pandemic is unpredictable, policy stimulus, pent-up demand and a lack of major imbalances argue for a solid upswing when the virus threat clears. The containment measures being taken across the globe to combat the virus will have a large economic impact. Global gross domestic product (GDP) growth will probably be negative in the first quarter and will enter the second quarter at risk of contracting further. Provided the virus is transitoryperhaps contained in the second quarterthe global economy should be poised to rebound in the second half of 2020. The combination of monetary and fiscal stimulus on top of last years global central-bank easing, in addition to the reduction in China-U.S. trade tensions, argues for a solid recovery when the virus threat recedes. In the U.S., the governments virus containment measures mean a technical recessionnegative GDP growth in Q1 and Q2seems likely.
Our reference to the classic Toots and the Maytals song comes as we see a de-escalation in trade tensions with China, diminishing risks of a no-deal Brexit and few signs that the record U.S. economic expansion is ending or reversing. Still, persistent trade uncertainty is denting business confidence and spending, particularly the longer-term risk of an unravelling of the global supply chain. Our take on the major investor themes for the weeks ahead: U.S. Equites: Sector Steering Defensive sectors have outperformed cyclicals this year against a backdrop of slowing growth and falling interest rates. However, we expect central bank easing could provide a floor for growth in the coming months. Among cyclicals, we remain constructive on technology, while we prefer less rate-sensitive sectors. Developed Markets: Winter of our discontent? Trade uncertainties and slowing growth have taken a toll on developed world stocks outside the United States. But not all DMs are created equal, and
Investment Directions - Staycation or Vacation? Sell in May and go away is an old maxim for investors. Evidence is mixed on its validity, but given this years rally, the temptation now is understandable. Our take: 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 and catch up on chores. With that in mind, our take on the major investor themes for the weeks ahead: U.S. Equities: Reverting to Technology We remain overweight U.S. equities, and one of our favored sectors is technology. Even with strong performance this year, we believe the sector remains appealing. Technology firms tend to have strong balance sheets and enjoy support from longer-term trends, attractive qualities in a late economic cycle. Furthermore, tech stocks have historically fared well through various yield curve regimes. Developed Markets: Europe Poised for Revival? Investors in Europe have had little reason
Investment Directions - Spring Forward Once again, spring is near, a time of growth, renewal and restoration. But with concerns over slowing growth, uncertainty around economic and earnings outlooks, and ever-present U.S.-China and European political risks, investors should be prepared for potential spring volatility. Our take on the major themes for this quarter: U.S. Equities: The Healthy Healthcare Sector In an environment of slowing growth and less certain earnings outlooks, the traditional defensive qualities and resilient earnings growth of healthcare stocks are appealing. Plus, valuations broadly look reasonable compared to historical levels. Tactical investors may consider getting more granular with the medical devices industry. Developed markets: What Next for Brexit? With Theresa Mays Brexit plan resoundingly defeated, she must now renegotiate a deal. We believe the United Kingdom is likely to avoid a hard exit with an extension of the March 29 deadline to exit and gain time
Global financial markets experienced heightened volatility during the fourth quarter of 2018 as concerns surrounding higher interest rates here in the U.S., and uncertain trade and tariff relations worldwide, weighed heavily on investor sentiment. We present a few highlights from the 4Q18 below: U.S. equity markets sold off sharply during the fourth quarter in volatile and choppy trade, with large intra-day moves the norm. In this risk-off environment, the S P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite traded sharply lower. On the economic front, U.S. economic data remained strong. However, there are potential international and domestic headwinds that could dampen growth, particularly uncertainty surrounding trade policy for U.S. businesses. Developed international equity markets posted steep declines in tandem with those here in the U.S. Financial markets in the Eurozone generally lagged those in the Pacific ex-Japan region as Brexit worries persisted.
Global financial markets posted mixed results during the third quarter of 2018 as investors balanced heightened trade tensions globally with strong earnings, a solid labor market and healthy economic growth here in the U.S. We present a few highlights from the 3Q18 below: Despite heightened geopolitical rhetoric, the S and P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite continued to trade near record highs amid solid economic data and strong corporate earnings. On the economic front, the Federal Reserve held interest rates steady at a range of 1.75% to 2%. However, meeting minutes released from the Feds early August session indicated a rate hike was likely when the Fed meets September 25th-26th. Developed international equity markets produced mixed results during the third quarter with those in the Pacific ex-Japan region generally lagging those in Europe. On the political front, the resignation of Brexit secretary David Davis renewed fears of the potential
Global financial markets posted mixed results during the second quarter of 2018 as investors balanced strong earnings, an improving labor market and better economic growth here in the U.S. with political turmoil in Europe and deteriorating trade relations worldwide. We present a few highlights from the 2Q18 below: Despite heightened geopolitical rhetoric, the S P 500, the Dow Jones Industrial Average, and the technology-heavy Nasdaq Composite continued to trade near record highs amid positive economic data and strong corporate earnings. On the economic front, the Federal Reserve raised interest rates by 25 basis points in June to a range of 1.75% to 2%, and upgraded their assessment of U.S. economic growth. Consequently, the FOMC now anticipates raising interest rates four times in 2018. Developed international equity markets produced mixed results during the second quarter on political turmoil in Spain and Italy, and rising trade tensions with the U.S. Gains came out of Europe, while
Global financial markets posted mixed results during the first quarter of 2018 amid a spike in volatility on concerns surrounding higher interest rates and rising inflation expectations. Meanwhile, the Trump Administrations tariff announcement on steel and aluminum led to heightened geopolitical tensions with several U.S. trading partners, sparking concerns of a trade war. We present a few highlights from 1Q18 below: U.S. equity markets sold off sharply in late January and early February, resulting in the first correction (10% drawdown) since early 2016. Stocks moved mostly higher for the remainder of the quarter in volatile and choppy trade, with large intra-day moves the norm. Despite the volatile environment, the SP 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite managed to hover near their all-time highs. On the economic front, preliminary estimates indicate fourth quarter GDP slowed slightly more than initially thought due to slower inventory growth.
Global financial markets continued to increase during the third quarter of 2017, supported by improving world economic growth. However, fiscal and monetary uncertainties as well as geopolitical events - continue to present risks. While tensions exist around the world, the potential for escalating military conflict with North Korea is the immediate threat. A few highlights from the third quarter are: U.S. equity markets continued to trade near record highs despite the new Trump Administrations failure to show meaningful progress on key domestic policies. On the economic front, preliminary estimates indicate GDP grew better-than-expected in the second quarter, reflecting robust consumer spending and strong business investment. U.S. equities are now in the ninth year of a bull market, making it one of the longest in the post-WWII era. Developed international equity markets were also positive during the third quarter and continued to outperform their domestic counterparts as earnings
Following the strong start to the year, additional positive performance slowed in the second quarter as markets digested a tremendous amount of economic and geopolitical news. However, despite elevated levels of uncertainty throughout global financial markets, returns overall remain robust year-to-date. A few highlights from the second quarter: U.S. Equity markets added to gains from earlier in the year at a slower pace as compared to the first quarter. Economic data was mixed and overall GDP results fell short of expectations. Despite uncertainty, corporate earnings were stronger than anticipated which helped push equity markets to new highs. International equity markets were positive during the quarter and outperformed their domestic counterparts. Economic data in Europe continues to come in better than expected, and could be signaling a period of sustained growth. Emerging Market equities posted some of the strongest gains of all in countries such as China, India, and Brazil, which
In many ways, 2016 has proven to be predictably unpredictable as highly covered events and predictions have not met up with outcomes (a few examples: Growth concerns in China, Fed uncertainty, Global slowdown fears, and Brexit). Q4 proved to be no different with the surprise election outcome of President-elect Donald Trump, and continued shifts in the political landscape abroad. Optimism about the incoming administrations plans for fiscal stimulus through reduced taxes and increased infrastructure spending, along with a move toward deregulation in the financial industry, seemed to drive sentiment for Q4. This positive sentiment was the primary driver of outperformance in the financial and industrial sectors, the expectation of nationalistic trade policies weighed on EM Equities, while positive sentiment surrounding U.S. equities drove investors out of Treasury and into U.S. equities, sending the yield on the 10-year Treasury Note to 2.37%. Some key highlights over the quarter: According
For many, the end-of-summer months of July, August and September brings warmer weather, vacation and time with family. At the end of Q3, investors were treated to some calm as light trading activity was met with modest gains across stocks and the Fed decided not to change rates on September 22nd. Despite volatility through the first half of the year, Q3 brought much needed positive economic data, job growth and increases to investor sentiment. Some key highlights over the quarter: Investors were encouraged by a solid upturn in US housing construction, driven in part by continued improvement in the job market. Late in the month, the US Commerce Department announced that new home sales had surged 12.4% in July and reached a nine-year high. International stocks rose during the quarter, as investors shifted towards equities given the low interest rate environment. Global financials, though, rallied during the month as uncertainty around Brexit eased and bank share prices began to rebound
As Q2 comes to a close, the SP 500 continued its positive momentum from Q1, posting a +1.8% gain in May. Despite global flare-ups, the US economy continues to grow and investors were pleased with signs of resilience as most asset classes were able to post positive returns over the period. Some key highlights over the quarter: - As the U.S. approaches full employment, it is no surprise that the pace of jobs growth is slowing. Wages have also been rising, which should help consumer spending. Should productivity levels improve, this would have a positive effect on wages and corporate profits. - U.S. stocks reached a 10-month high in June as the Federal Reserve decided not to raise rates at this time. - International stocks slipped into negative territory in May, ending a rally that began in late February. The Eurozone, Asia, and emerging markets, as measured by MSCI indexes, declined amid weak metals prices, lower manufacturing output, and a slumping energy sector due to oversupply and
Since its low of 1,810, the SP 500 has surged, rising more than 200 points in less than a month and erasing losses from earlier in the year. Despite recent gains, many investors remain skeptical about the prospects for stock prices. In some ways, conditions have improved over the past month. U.S. economic data look more solid, worries about China have faded and global monetary policy is more accommodative. On the other hand, valuations now look less compelling, corporate revenues are under pressure and it is uncertain how long the oil price rally can continue unabated. For the time being, we think risk assets will continue to be buffeted by the multiple factors, especially policy changes from Central Banks around the world. Most recently, the European Central Bank (ECB) cut three of its key interest rates, while the Federal Reserve in the U.S. has postponed, for now, raising U.S. rates. We are living in a world in which the financial markets are highly influenced by Central Banks. It