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In this piece, we compare the proposals of Vice-President Harris and former President Trump across taxes, trade and immigration, and the potential market implications of different election outcomes.
Elevated public market valuations, historically low bond yields and positive stock-bond correlation are all challenges facing the traditional 60/40 portfolio. Moving forward, investors may need to rely on alternative asset allocations to enhance return, income, and diversification in their portfolios.
“The time has come” was a memorable phrase from Chair Powell’s speech at the Jackson Hole Symposium last week. After a few false dawns this year, Federal Reserve rate cuts are imminent, with the discussion now shifting to how quickly rates will come down.
Interest rate expectations have changed wildly since the start of the year. While these expectations will continue to evolve as new data are released, one thing seems clear: the Federal Reserve will begin its rate cutting cycle this year, and it will cut by more in 2024 than it had previously telegraphed.
Markets have largely rebounded from the volatility of the past two weeks. The S&P 500 has recovered 3.0% after a 4.8% decline, U.S. Growth equities have risen 4.3% following a 5.5% drop, and the VIX has settled at 20.7, after spiking to 55.1, its highest level since March 2020.
Large moves were seen in Japanese markets, which dropped 6% on Friday (8/2) and another 12% on Monday (8/5), marking the worst daily sell-off since 1987.
The Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50%, but hinted rate cuts are on the horizon.
Mega-cap tech has enjoyed a long winning streak, but the stars recently began to align for the underdogs to take the lead.
With the U.S. election approaching, potential U.S. policy changes are a key concern for global investors. After most U.S. elections, the MSCI EM Index has had positive performance in the 100 days following.
Later this month will mark a year since the last rate hike from the Federal Reserve (Fed). Historically, the end of a hiking cycle should have been an opportune time to extend duration by deploying cash into high quality intermediate fixed income securities.
While French politics are somewhat unique, the New Popular Front’s victory is the second win for a left-wing party so far this month after a strong defeat of the Conservatives in the UK.
Looking to the back half of the year and beyond, lingering geopolitical uncertainty and an upcoming U.S. presidential election, coupled with the divergence in performance across assets, underscores the importance of diversification in a fundamentally uncertain world.
The “Magnificent 7” has massively outperformed the rest of the market, up roughly 30% since the start of the year compared to around 5% for the remaining companies, on AI-related headlines and strong earnings growth.
Markets have a tendency to over appreciate the near term and under appreciate the long term. We think AI will lead to all sorts of business transformation and productivity gains in the long term, but recent performance has been driven by significant upgrades in near-term AI demand projections.
The average homeowners’ insurance policy cost roughly $1,900 in 2023, up over 20% from the previous year and nearly 50% from before the pandemic.
In the May CPI report, year-over-year headline inflation cooled to 3.3% from 3.4% - down one decimal, yet the median FOMC rate forecast for 2024 moved higher by half a percent.
MORENA party’s candidate, Claudia Sheinbaum, won the Mexican presidential election with a historic margin, receiving 60% of votes. This victory was anticipated, but the scale of left-leaning MORENA's win in Congress was unexpected.
For three years, stock and bond returns have been moving in the same direction. When times are good, this is not thought of as a problem; however, when stocks sell off and bonds are not there to catch them, then investors are faced with an important portfolio construction challenge to solve.
The U.S. is the largest equity market in the world, but its weighting in the MSCI AC World Index exceeds its global equity market weighting and its projected contribution to global GDP in 2023.
While we don’t expect home prices to decline materially from here given structural dynamics, Americans that have been sidelined from being able to purchase a home over the past couple of years are perhaps hoping and waiting for at least one area of reprieve: lower mortgage rates.
If 2023 was the year for AI excitement, this year may be the year for deployment. In first quarter earnings calls, approximately 45% of S&P 500 companies mentioned AI, marking a fresh high by our measures, and their collective investments continue to climb.
Within that “super core” index, one small category (only 3% of the overall CPI basket) has been making outsized contributions: auto insurance.
2023 marked a third consecutive year of double-digit declines for Chinese equity markets. Investors are now reconsidering how to invest in that market and whether investing in Asia is about more than just China.
To understand these shifting dynamics and determine how to embrace this growing asset class, investors should consider: What’s driving the growth of private credit and the decline in high yield and, if private credit deserves a strategic allocation in a broader credit portfolio?
Following the pandemic, median home prices surged by double digits until peaking at the end of 2022. While prices are down roughly 12% since then, home affordability still sits at multi-decade lows.
At its May meeting, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50%.
Sticky price pressures pose a challenge for the data-dependent Fed, casting doubt on the possibility of any rate cuts this year.
Investors should consider trimming decade-long international equity underweights – and Asia is the key place to look for opportunities.
Private equity has been surprisingly resilient throughout the Fed hiking cycle. In 2022, PE only declined by 2%, but is now 3.2% higher than the end of 2021, compared to U.S. small cap stocks, which were 7% lower.
It’s well understood that consumption is the largest contributor to economic growth in the United States accounting for just under 70% of GDP. Therefore, to a large extent, any outlook on the economy hinges on the health of the consumer.
Investors should recognize that while geopolitical headlines have the ability to capture market attention, the shocks to sentiment are often short-lived.
Well-positioned investors could take advantage of the new era unfolding in healthcare transformation.
We expect yields to stabilize in the near term and for spreads to remain tight given still healthy credit fundamentals and strong economic activity.
2023’s so-called “everything rally” was confusing to many market watchers, given the pessimistic macro outlook at the beginning of last year. Now, a quarter into 2024, the rally has clearly continued.
The S&P 500 notched 24 new all-time highs in Q1, up 10.6%, with 2.7%-points from earnings, 7.4% from multiple expansion, and 0.4% from dividends.
While we don’t expect a recession this year, whenever one occurs, the lack of private sector imbalances suggest that it is unlikely to be a severe one.
Investors should focus on EM regions and sectors that benefit from structural, as well cyclical, tailwinds.
As widely anticipated, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% at its March meeting.
Cryptocurrency investments should be made cautiously, and only as part of a much larger diversified portfolio of stocks and bonds. For investors with a long time horizon, traditional asset allocation remains an effective strategy.
For investors looking to diversify concentration to U.S. tech names or to lean into underappreciated AI opportunities, Asian high-quality technology stocks could provide an attractive opportunity set.
Despite causing some short-term profit taking, gradual Yen strength can be digested by equities. Japan finally deserves to retake its place as a strategic allocation in global equity portfolios.
The financial future for women looks promising, but for individual investors, a strong financial plan will be key in seizing the opportunity.
After a significant pricing reset, private real estate could be on the verge of a rebound due to a few key drivers.
With monetary policy still at the forefront of the macro landscape in 2024, investors are left wondering how the election might influence Fed policymakers.
Investors should recognize that the challenging backdrop presents an opportunity for alpha generation, both through traditional security selection and through active tax management
For over a year, investors have been hyper-focused on the performance of just seven U.S. companies, nicknamed the “Magnificent 7”*, and rightfully so, given their outsized returns, earnings growth, and long-term tailwinds.
Over the last 30 years, cash has been unable to keep up with the creep of inflation. By contrast, other investments have been much better places to park capital.
Presidential candidates will be campaigning on various policy proposals throughout the year, but one policy item that must be addressed during the next administration is whether to sunset or extend tax cuts from the 2017 Tax Cuts and Jobs Act.
The S&P 500 has reached a new milestone: crossing 5000. It is up 5.4% year-to-date, compared to the equal weight S&P 500, up just 0.7%.
While recession risks in the US have receded, geopolitical risk, election risk and restrictive monetary policy all threaten the current rally.
As the Year of the Dragon is about to begin in China, investors wonder: Are Chinese equity valuations cheap enough to bring good fortune ahead? What will turn investor sentiment around? Equity valuations already reflect a lot of uncertainty about the short-term and long-term path, suggesting a tactical rebound may be in the cards.
At the first Federal Open Market Committee (FOMC) meeting of the year, the FOMC voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50%.
Geopolitical uncertainty and an impending U.S. presidential election, coupled with the divergence in performance across assets in January, help to underline the importance of diversification in a fundamentally uncertain world.
Much has been said about the “Magnificent 7” stocks that dominated market returns last year, ending 2023 up 107% and accounting for around two-thirds of the S&P 500’s performance.
After an impressive equity rally in 2023 and new all-time highs to start 2024, investors are evaluating their equity allocations, which includes where to position along the market cap spectrum.
International equities are likely to benefit this year from positive structural changes, a weaker dollar, and exciting governance changes.
A spike in oil prices could lead to higher prices at the pump, further disrupting the broad disinflationary trend.
The December CPI report showed an unexpected bounce in inflation with headline CPI rising 0.3% m/m (consensus 0.2%) and the year-over-year rate rising to 3.4% (consensus 3.2%).
Although investors may be tempted to invest based on who they think will win the election and how certain policies may be implemented, macro forces often dwarf policy agendas when it comes to sector performance.
For investors, should fundamentals remain solid we would expect the Fed to begin gradually reducing rates by the middle of this year and for long-term rates to stabilize at current levels, before grinding lower over the balance of the year.
Many investors wonder if they can tweak their existing exposures to be either more defensive against volatility or more opportunistic if certain sectors face future policy tailwinds.
We cannot predict what theme will dominate the markets in 2024, but we can control how we react to positive and negative surprises by having a measured approach to portfolios.
Deficits are financed through Treasury issuance, and it is likely this significant increase in Treasury bond supply relative to estimates contributed to the move higher in bond yields this year.
At its final meeting of 2023, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% and strongly hinted it is finished hiking interest rates this cycle.
In many ways, 2023 can be used as evidence that asset allocators must learn to “expect the unexpected”: the U.S. economy avoided a recession, the Federal Reserve pushed interest rates higher, growth equity continued to outperform relative to value and the international recovery was largely lackluster.
The macro landscape has shifted dramatically over the last three years, and in 2024 uncertainty lingers as to whether the economy will experience resilience or recession.
Japan has long been a disappointing market for global investors, with annualized 15-year returns of 6.4% (in U.S. dollars) versus 13.7% in the U.S. Slow growth, negative interest rates, lack of focus on shareholders, and better opportunities elsewhere in Asia kept investment dollars away from Japan.
For investors, large caps may be better insulated from higher rates than small caps, and falling net interest costs can assist decelerating input costs and wages in supporting stabilizing margins.
The big story for U.S. equity markets this year has been the remarkable performance of the largest seven technology stocks or the “magnificent 7.” These handful of stocks account for nearly 100% of S&P 500 YTD returns and are up over 72% this year.
Many investors are comfortable with the concept of fundamental analysis but are less confident in the technical aspects of market forecasting. As a result, they may wonder: does technical analysis matter?
Active stock selection remains of the utmost importance, as investors should look toward attractively priced companies with strong balance sheets and resilient profits.
For markets, disinflation could pose an earnings headwind for certain industries like autos, hotels and airlines while the Fed’s “higher for longer” mantra could instill continued volatility in bond markets.
While many of the traditional sources of diversification have been challenged by market conditions, alternative investments can enhance diversification.
Coming into 2023, the rallying cry from the asset management community was “Bonds are Back! ”. There were several reasonable assumptions behind this call.
While a reacceleration in growth and/or inflation could prompt another rate hike either in December or early next year, short-term bumps in a downward trending economy likely keep the Fed on hold well into 2024.
Historically, Chinese market recoveries can be fast and furious, highlighting the risk of being too underweight China when pessimism is already elevated.
The secondary market can often relieve liquidity issues for investors in private equity by offering the opportunity to sell existing investments to another buyer.
At first glance, the jump in energy equities may seem like a temporary phenomenon, but a variety of economic factors could support the sector’s performance over the longer-term.
Given the shifting characteristics in the bond market and uncertainty around the path of rates from here, investors should engage in an active approach with proven managers in their fixed income allocations.
The question for investors, however, is which measure of earnings has the highest correlation with stock market returns.
With two FOMC meetings before year end, investors and policymakers are closely monitoring the totality of incoming data to determine whether the committee will lift rates again or go on an extended pause.
Despite many looming threats to the economy, 3Q23 earnings season should hopefully represent a relative bright spot in the landscape.
As rates have moved higher risk assets have found themselves under pressure, with the S&P 500 down more than 7% from its July 31st high of 4,589. To an extent, this price action has been driven by a shift in investor psychology whereby “good news” is now “bad news.”
It is still a close call on whether the economy will enter a recession or not, but we do believe slow growth is the most likely outcome, while risks for a mild recession remain.
If automobile production decreases, prices for vehicles, particularly used ones, may increase once more, unwinding some of recent disinflation and putting renewed upward pressure on “super-core” CPI.
After well over a year of anxiously anticipating an economic recession, the U.S. economy continues to look sound. However, as we enter the “fall of worry” there are several risks on the horizon this autumn: impacts from the UAW strike, rising oil prices, the resumption of student loan payments, and the potential for a government shutdown.
As widely anticipated, the Federal Open Market Committee (FOMC) voted to leave the Federal funds rate unchanged at a target range of 5.25%-5.50% at its September meeting.
With the possibility of tighter financial conditions going forward, investors may be well served by looking for any signs that tighter conditions are beginning to weigh on activity.
Over the long run, duration will be an investor’s friend for both asset classes: not only will lower rates push bond prices higher, but a lower opportunity cost of owning equities and easy monetary policy should allow valuations and earnings expectations to move higher.
While what happens in China will continue to influence growth, sentiment, and performance in the broader EM universe, powerful structural and cyclical themes can lead to differentiated performance.
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