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    1. Insights

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    Insights to empower better decisions

    Tools and resources necessary to help make informed investment decisions and build stronger portfolios

    EXPLORE OUR FLAGSHIP INSIGHTS

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    Liquidity Insights

    Discover our vast array of liquidity insights covering global investment news and trends.

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    Market Insights

    Market Insights

    Simplify the complex with our thought-provoking insights written by our global team of strategists.

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    Eye on the Market

    Explore timely commentary on the economy, markets, and investment portfolios by Michael Cembalest.

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    Portfolio Insights

    Portfolio Insights

    Get perspectives and analysis from our investment teams to help guide portfolio decisions.

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    OUR EXPERTS CAN GUIDE YOU THROUGH PERIODS OF EXTREME TURBULENCE

    LIQUIDITY INSIGHTS EYE ON THE MARKET MARKET UPDATES
    LIQUIDITY INSIGHTS

    The Fed’s balancing act

    The FOMC maintained its firm stance against inflation by raising interest rates 25bps to 4.75%-5.00%, despite heightened financial stability risk. Interest on reserve balances (IORB) and the overnight reverse repo rate (RRP) were also increased by equivalent amounts to 4.9% and 4.8%, respectively.

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    Bank of England keeping options on the table

    At its March 2023 meeting, the Monetary Policy Committee (MPC) raised the Bank Rate by 25bps to 4.25%, the highest level since November 2008. The increase was largely expected by the market despite recent global financial market volatility.

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    PBOC RRR cut – Front Loading Policy Support

    On Friday 17th March, the People’s Bank of China (PBOC) announced a broad-based 25bps Reserve Requirement Ratio (RRR) rate cut, releasing additional liquidity into the banking system and reducing commercial bank funding costs.

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    ECB sticks with 50bps hike, despite market turmoil

    The European Central Bank (ECB) acted on February’s forward guidance by increasing key interest rates by 50 basis points (bps), despite current market volatility.

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    Reserve Bank of Australia - A pivot to less hawkish

    At its monetary policy meeting on the 7th of March, the Reserve Bank of Australia (RBA) hiked its Overnight Cash Rate by 25bps to an eleven-year high of 3.60%. The rate hike was widely anticipated following last month’s hawkish pivot.

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    Is it time to rethink cash investing?

    Money market funds are providing investors with the highest yields in 15 years while offering liquidity and stability of principal

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    Hong Kong Interest Rates – rational confusion

    The HKMA intervened to defend the peg and purchased HKD 19bn on February 14-15. This has reduced its aggregate balance to HKD 77bn, the lowest level in almost three years.

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    RBA – No pause yet

    At its first monetary policy meeting of 2023, the Reserve Bank of Australia (RBA) raised its Overnight Cash Rate by 25bps to 3.35%. The move represents the ninth consecutive hike in the current cycle, and the accompanying statement was more hawkish than expected.

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    ECB stays the course towards inflation reduction

    The European Central Bank raised its key interest rates by 50 basis points, in line with expectations to a 15-year high of 3.00%. In the accompanying statement and subsequent press conference, the ECB maintained its hawkish tone, signalled an intention to increase rates by a further 50 bps in March.

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    UK turns a corner but risks remain large

    The Bank of England raised the Bank Rate by 50 basis points to 4.00% in a split 7-2 vote as a tight labour market and continued domestic wage and price pressures justified a tenth consecutive increase.

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    On The U.S. Debt Ceiling

    To prevent the United States from defaulting on its payment obligations, the Treasury will now be forced to utilize its cash balances and take steps towards “extraordinary measures.”

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    Downshift, but still hiking

    The FOMC unanimously decided to downshift to a smaller but, in the words of Fed Chairman Jerome Powell, “still historically large increase” of 50 bps.

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    PBoC cuts RRR – A renewed dovish signal

    On Friday 25 November, the People’s Bank of China announced a 25bps Reserve Requirement Ratio cut. In the accompanying statement, the PBoC confirmed the RRR cut was part of a package of measures to support economic growth.

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    Fed - The lag effect

    The FOMC showed once again that it is prepared to take interest rates into sufficiently restrictive territory in order to clamp down on inflation. For the fourth consecutive meeting, it unanimously decided to increase its Federal Funds target rate by 75bps to a range of 3.75%-4.00%. Interest on reserve balances (IORB) and the overnight RRP were also increased by equivalent amounts to 3.80% and 3.90%, respectively.

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    A divided Bank of England delivers 50bps as rates rise to 2.25%

    The Bank of England raised the Bank Rate by 50 basis points to 2.25% in a split 5-3-1 vote as the tight labour market, higher wages and higher domestic inflation justified a seventh consecutive hike.

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    Getting tough on inflation

    The Federal Open Market Committee unanimously decided to increase its federal funds target rate by 75bps for the third consecutive meeting, as Fed officials remain focused on dampening inflation.

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    PBOC attempts to jump-start the economy

    On August 15, the People’s Bank of China announced a MLF rate cut of 10bps to 2.75%. Although small in size, the rate cut confirms the PBOC’s desire to jump-start the economy and sends an important monetary policy signal with significant implications for interest rates and RMB cash investors.

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    RBA hikes rates, but pivots from a “pre-set path”

    At its monetary policy meeting on August 2, the Reserve Bank of Australia (RBA), in-line with expectations, hiked the base rate by 50bps to 1.85%, taking total rate hikes to 175bps over the past 4-months.

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    When does unusually large become usual?

    On July 27, the Federal Open Market Committee (FOMC) raised its Federal Funds Rate target range by 75 basis points (bps) to 2.25% - 2.50%. There were no dissenters.

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    Fed gets aggressive on inflation

    The Federal Open Market Committee matched market expectations for a 75bp increase to its target range, which now sits at 1.50%-1.75%. It also raised the Interest on Reserve Balances and the overnight Reverse Repo Rate by an equivalent amount to 1.65% and 1.55%, respectively.

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    Tempered Expectations

    The FOMC met market expectations for a 50bps increase to its target range, which now stands between 0.75% and 1.00%, and raised the Interest on Reserve Balances (IORB) and the overnight Reverse Repo Rate (RRP) by the same amount to 0.90% and 0.80% respectively.

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    PBOC’s muted monetary policy and its implications for CNY interest rates

    The latest muted actions by the PBoC suggest the central bank is reaching the limits of monetary policy, which are expected to have direct implications for onshore interest rates.

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    Fed lift-off

    On 15-16 March, the Federal Open Market Committee (FOMC) held its two-day meeting and raised its federal funds rate target range by 25 basis points (bps) to 0.25%-0.5%, with one dissenting member calling for a 50bps increase.

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    Monetary Authority of Singapore – Cautious optimism as recovery continues

    At their latest semi-annual policy meeting, the MAS' comments was modestly upbeat and the central bank revised up their headline inflation target - both of which could have implications for SGD cash investments.

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    EYE ON THE MARKET

    Eye on the Market 13th Annual Energy Paper

    Renewables are growing but don’t always behave the way you want them to.

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    Silicon Valley Bank failure

    One of these things is not like the other, and that thing is Silicon Valley Bank.

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    Winter Heating

    US economy stays warm, large language model battles get hot

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    American Gothic

    The Federal debt and how the Visigoths may try to break the system if no one fixes it.

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    The End of the Affair

    The End of the Affair. The affair with market catalysts of the last decade is over now, and a new era of investing begins. A look at a world of higher inflation, more regionalized trade and investment and more capital scarcity.

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    Holiday Eye on the Market: Non-Fungible Trainwreck

    A discussion of the YUCs, the MUCs, FTX and three rules for investors: the Gensler Rule, the Sirens Rule and the Summers Rule. Our 2023 Outlook will be released as usual on January 1st.

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    Little Red Wagon

    A preliminary read on midterm election results given the context of prevailing market and economic conditions.

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    A CH₄, HR4346 and mRNA-1273 Thanksgiving

    My list of things I am thankful for this year: CH4, HR4346 and mRNA-1273. Of course, your mileage may vary.

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    Reruns

    Three reruns for investors. First, in almost every post-war bear market, equity declines preceded the fall in earnings, growth and employment. As a result, we’re more focused on changes in manufacturing surveys than on the other victims of a recession as a sign of the bottom. Second, Graham Allison’s rising power conflict analysis and its historical precedents come back into focus with the latest US policies cutting off high performance semiconductor exports to China. Third, another press article on a small country as a prototype for a renewable future that does not address its irrelevance for larger developed or developing economies.

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    Arrested Development

    Three topics this week: the repricing of risky credit, labor markets and a COVID recap. While equities are pricing in a much greater probability of recession now, the credit markets are just getting started. One canary in the coal mine: the Citrix financing, which will be followed by a string of even weaker credits. On labor markets, the Fed is facing the tightest labor supply conditions in decades. Can second chance policies easing the path to employment for people with criminal arrest records help increase the labor supply, or will the Fed have to crush the economy to restore desired levels of wage and price inflation? Lastly, an update on bivalent vaccines and inhalable vaccines, as the latter offers the best chance of actually reducing infection and transmission.

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    On CPI, S&P, GHG and the IRS

    Three topics in this month’s Eye on the Market. First, an update on the Fed, inflation and corporate profits since we believe the June equity market lows may be retested in the fall. Second, a detailed look at what would have to happen for the climate bill’s projected GHG savings to actually occur; the answer matters given the implications for the US natural gas industry. And finally, will all the new IRS agents really stick to auditing taxpayers above $400k? Data from the GAO suggests there may not be enough of them to meet the Administration’s revenue targets.

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    The second gear of the Manchin-Schumer bill

    Whenever there’s a tax/spending bill passed by Congress, the Congressional Budget Office “scores” the bill with respect to its impact on deficits, debt and GDP.

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    Long Hot Summer Reading List

    Most summer reading lists are carefully curated, inspirational elegies to the human spirit. This is not that. See today’s note for links to reading materials on energy, economics, finance, the Supreme Court, geopolitics and COVID/cancer research as this long hot summer rolls on. Also, a look at the recently unearthed “Shakespeare’s Annotated Guide to Bitcoin”.

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    Independence Days

    Europe’s energy crisis, China’s commodity trade war with Australia and other examples of resource nationalism (India and Indonesia restrictions on exports of wheat, sugar and palm oil) have reinforced the following: relying on essential food and energy imports is a risky proposition with respect to supply, price, currency stability and national security.

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    Eye on the Market 12th Annual Energy Paper

    The Elephants in the Room. We start with a global summary of the energy landscape, including the energy crisis in Europe. We continue with a detailed assessment of the hydrogen economy, whose liftoff is still many years away.

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    Dearly beloved

    JP Morgan CEO Jamie Dimon stated last week that he expects a “hurricane” resulting from the end of the largest fiscal and monetary experiment in history, and from the ongoing impact of Russia’s invasion of Ukraine on food and energy prices.

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    Bear Market Barometers

    The slowdown induced by central bank tightening is just starting. You can be patient when adding risk to portfolios; earnings will eventually decline and markets are not pricing in high risk of recession.

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    The Tide Goes Out: Growth Trade Aftermath

    A combination of rising rates, the Russian invasion of Ukraine and years of investor acceptance of unprofitable new companies (the “YUCs”) led to a sharp repricing of growth stocks in Q1 of this year.

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    Dude, Where’s My Stuff?

    The global supply chain mess will require increased vaccination and acquired immunity, semiconductor capacity expansion and the end of extraordinary housing/labor supports to resolve. A close look at some very anomalous charts on shipping, semiconductors, inventories, labor shortages, foreclosures and mortality.

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    Your Fall 2021 syllabus

    Greetings students. We look forward to seeing you back on campus. Your Fall 2021 syllabus is attached. Syllabus update: Biology BI66 “The Origins of COVID” has been cancelled until further notice.

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    Red Med Redemption

    Red Med Redemption: A visual depiction of politics, ideology, vaccine resistance and the Delta variant. Other topics: US economic recovery update, and big tech reliance on acquisitions to fuel growth at a time of rising anti-trust enforcement. We conclude with a new “Investor Odds & Ends” section that covers NYC hotel/office markets and possible changes in personal, corporate and international tax rates.

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    Thy Brother’s Keeper

    COVID and the Delta variant; the Fed as firefighter and arsonist; US-China economic divorce picks up steam; and the pig-snake inflation timetable (how long until we know if there’s a permanent wage/price rise).

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    Food Fight: 2021 private equity update

    Every two years, we take a close look at the performance of the private equity industry given its rising share of institutional and individual portfolios. Our findings this year: the private equity industry is still outperforming public equity, but this outperformance narrowed as all markets benefit from non-stop monetary and fiscal stimulus, and as private equity acquisition multiples rise. We examine manager dispersion, benchmarks, co-investing, GP-led secondary funds, the torrid pace of industry fundraising and manager fees in this year’s piece.

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    Election 2020 - Praying for Time

    The election as referendum on America: how well does the “system” work, and for whom?

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    The Needle and the Damage Done

    The cost of engineering a US recovery as the world waits for a vaccine; Biden agenda on taxes/spending; Tech stocks (2020 vs 1999); COVID and The Fountainhead; US election rules, dates and process in light of derogatory comments on mail-in voting by the President and Attorney General

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    The Bounce

    The US recovery; The flood of money and market returns; Globalization lives; Reducing COVID mortality through vascular treatments; Realistic timetables for never-been-done before vaccines; Sweden’s COVID experiment is not what you think

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    The Day After

    Tracking the rebirth of the US consumer with real time data as a function of infection levels and state policy. Additional topics: no evidence yet of material second waves of COVID infection, and a round-up of the latest news on vaccine trials (Moderna, Oxford, Sinovac) and anticoagulants.

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    Zoom Room

    In this week’s Eye on the Market, we review topics from our recent client Zoom calls. Topics include: risk of inflation, second waves of infection, the effectiveness of lockdowns and Biden’s taxation and spending agenda.

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    Ready or Not: The US prepares to reopen

    An update on the COVID-19 crisis as the US prepares to reopen despite having one of the highest infection rates in the world. Additional topics: monoclonal antibodies and anti-viral trials; the growing gap between markets and the economy; S&P 500 earnings haves and have-nots; regional equity performance (Europe loses again) and leveraged loans at a time of rising bankruptcies.

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    State's Rights

    In this week’s note, we discuss the latest news on US infection trends and reopening plans, Remdesivir trial results and whether US fiscal stimulus is “enough”.

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    Are we there yet?

    Lockdown relaxation and economic reawakening…are we there yet?

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    COVID and culture

    In this week's note, we take a close look at country and regional virus data, and examine the pitfalls of over-extrapolating trends that often reverse.

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    The equity rally and herd immunity

    After the equity rally, P/E multiples are back at around 16x 2021 consensus earnings.

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    Man vs Nature Part II

    Virus trends and head-fakes, convalescent plasma and U.S. vs. China lockdowns.

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    Man vs Nature: what the government can and cannot fix

    There are things the government can try and fix during a pandemic and other things which it can't.

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    John Stuart Mill and the road from ruin to recovery

    There are some difficult days ahead as quarantines and lockdowns grow. I want to share something with you from John Stuart Mill as we head into the unknown.

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    The pandemic gap

    A lot of data is being made available on the coronavirus, but most of it requires careful analysis before drawing conclusions.

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    Berning Man

    Confounding almost every forecast we saw last week, Senator Biden appears to have emerged from Super Tuesday with a sizeable delegate lead. Why might the night have turned out so differently from what was expected just a few days ago?

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    COVID-19 update

    A Coronavirus update: severity, consequences and implications for investors.

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    Millions and Trillions

    Answers to questions on the coronavirus, US megacap stocks, the cost of Democratic Healthcare plans, the Iowa caucus and the problem with the student loan system.

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    Rotten Tomatoes

    Consensus reactions to the Phase I US-China deal are very skeptical, but may be missing the broader point. A brief note on what happened, and the alternatives.

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    Ghosts of Christmas Past

    After a very positive year for investors in 2019, we expect lower positive returns on financial assets in 2020 as some Ghosts of Christmas Past reappear.

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    War of the Worlds

    How a discussion about China and Hong Kong morphed into a chart war about Trump, Hoover, Taft, Rachel Maddow and Anderson Cooper.

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    The Armageddonists

    While recessions and bear markets are a fact of life, something peculiar happened after the Global Financial Crisis: the rise of the Armageddonists.

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    Warren Peace

    A close look at the Progressive Agenda, China’s deteriorating welcome mat in DC and US Tech IPOs.

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    Active Management and QE-distorted markets

    Michael Cembalest analyzes the performance of over 6,700 domestic and international active equity managers and discusses the challenges they face.

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    Cold Turkey

    A brief comment on a proposal from leading Presidential candidates to ban hydraulic fracturing everywhere, immediately.

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    So long Yellow Brick Road

    It was a long, hot summer at the Heritage Foundation. An update from the front lines of the Trade War.

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    Lost in Space: The Search for Democratic Socialism in the Real World

    Michael went on a search for Democratic Socialism in the real world, and ended up halfway around the globe from where he began.

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    Listen when people tell you who they are

    Michael discusses how he should have taken Trump at his word on tariffs, and the impact of the widening trade war on global growth and equity markets as proposed tariffs approach pre-war levels.

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    Smoot Hardly

    The US-China trade war, prescription drug price legislation and the 2020 election.

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    Energy Outlook 2019: Mountains and Molehills

    Topics: unattainable objectives of the Green New Deal; overview of the world’s decarbonization challenges; Germany’s energy transition; Trump’s War on Science.

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    MARKET UPDATES

    What are the opportunities in municipal bonds?

    However, with a potential recession on the horizon and vulnerabilities in the financial system, investors ought to be selective, gearing towards the highest quality areas of the bond market.

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    The March FOMC decision: Is the Fed done tightening?

    In the statement, the Federal Reserve (Fed) acknowledged the potential implications of banking turmoil on the economic outlook but highlighted that at this point, it’s uncertain how big that impact will be.

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    Where will the U.S. dollar go from here?

    However, we seem to be at the beginning of a turnaround given the change in the international growth and interest rate backdrop, together with a potential shift in market leadership.

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    How do investors make sense of economic data, bank failures and central bank actions?

    Putting aside the obvious implications of the above – namely uncertainty and, in turn, volatility – it would be wise to also consider what this means for the March Federal Open Market Committee (FOMC) meeting.

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    How does the February CPI print influence the FOMC’s March rate decision?

    This highly anticipated print was overshadowed by the fallout from regional bank failures, which could also impact how the Federal Reserve (Fed) approaches its March rate decision.

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    What is the outlook for commercial real estate?

    With the U.S. housing market struggling under the weight of higher mortgage rates, higher home prices, and limited supply, more and more questions have been coming in around the outlook for commercial properties.

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    Are the stars aligning for Emerging Markets?

    While uncertainty remains about the cyclical path of U.S. policy and growth, the picture has gotten much clearer (and more positive) in China since late 2022.

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    Will higher rates return inflation to 2%?

    The recent surge in inflation has been driven by both demand and supply factors as fiscal stimulus and low rates supported a boost in demand, while lockdowns put significant pressure on supply chains.

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    Have government labor data become unreliable?

    In general, these concerns remind us that the government’s monthly jobs report should be seen as just one piece of the broader labor market mosaic.

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    The impact of higher interest rates on housing and consumers

    Learn whether rising interest rates could cause a housing market crash and what it means for consumers.

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    Can bonds again provide both income and insurance?

    By the second half of the year, growth is likely to slow as the cumulative effects of higher rates are felt and inflation moderates as food and shelter consumer price index (CPI) soften.

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    Should Certificates of Deposit be a part of portfolio construction?

    Ultimately, the conversation around cash and traditional long-term assets should not be framed as “either/or”, but rather as “both, for different reasons.”

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    Is China unavoidable in 2023?

    Several pro-growth changes occurred late last year that investors should not ignore: support to the real estate sector, conclusion of the regulatory review of the internet sector, dialing down of geopolitical tensions – and crucially, a changing of the “Zero COVID policy".

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    Will disinflation be transitory?

    Markets had largely expected the uptick, but the underlying components showed a more mixed inflation picture compared to the broad-based declines seen in prior months.

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    How might financial conditions impact Federal Reserve rate hikes?

    Although financial conditions are tighter now than in early 2022, they have retreated significantly in recent months.

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    Is international equity outperformance sustainable this time?

    The next decade is likely to be characterized by more “normal” inflation. As a result, not all recent central bank rate hikes will be unwound - the era of free money is over.

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    How soon could the Federal Reserve finish hiking?

    The statement language and press conference were somewhat dovish.

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    Is there an opportunity in small caps?

    Importantly, however, significant valuation dispersion suggests that as investors gain more clarity about the health of the U.S. economy and trajectory of inflation and rates, small caps could lead the charge as we embark on the next bull run.

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    4Q22 Earnings: The calm before the storm?

    2022 was a year to forget in the capital markets. Stock/bond correlations turned positive and left traditional investors with nowhere to hide as volatility spiked and prices plunged.

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    Are bonds a good investment?

    Compared to the past decade, bond yields across every major sector are above their ten-year median.

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    What does the rental market mean for inflation this year?

    To have a clear view on where inflation may be heading, it is therefore worth understanding how the rental market is faring.

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    Can alternative investments deliver in 2023?

    Looking ahead to 2023 we see slower growth, a gradual deceleration in inflation, and monetary policy that remains tight; as always, this will create risks, as well as opportunities, across the spectrum of alternative investments.

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    Will the U.S. run out of funding after reaching the debt ceiling?

    For investors, we anticipate a slowdown in economic growth and inflation should bring bond yields lower, but debt ceiling risks, although certainly not our base case, could derail the bond market recovery and foment significant volatility if realized.

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    What do you expect from 4Q earnings?

    Operating leverage, which is the relationship between changes in revenue and changes in earnings, continues to be key for profitability.

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    What to do with fixed income in 2023?

    Current data suggest three realities: inflation is cooling; job growth remains firm, but is likely to moderate, as will wage growth; and services and manufacturing data point to broader economic slowing.

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    What are the investment implications of China’s reopening?

    China’s resumption of normal manufacturing activity should continue to support supply chain normalization, maintaining global inflation on its cooling trend.

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    Will diversification make a comeback in 2023?

    For long-term investors, buying the dips – in both stocks and bonds—could become attractive in 2023, and diversification could stage a comeback.

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    How will investors remember 2022?

    2022 was a roller coaster for investors with Russia’s invasion of Ukraine challenging global energy supply, central banks pivoting aggressively to combat high inflation, fading, yet still widespread effects of a global pandemic impacting consumers, businesses, and supply chains, and elevated political uncertainty shifting the landscape of economies globally. In summary, 2022 was a volatile year.

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    What is the consumer spending on?

    The past few weeks have seen much ink spilled on 2023 outlooks, with strategists and analysts suggesting an increased likelihood of recession next year as the consumer begins to show signs of stress at a time when the Federal Reserve (Fed) has signaled there is more room for rates to rise.

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    Why isn’t the market agreeing with the Federal Reserve?

    As widely anticipated, the Federal Open Market Committee (FOMC) voted unanimously to raise the federal funds rate target range by 0.50% to 4.25%-4.50% at its December meeting.

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    Is inflation finally slowing?

    November’s CPI report showed a second month of softening inflation despite still-elevated price growth. Headline CPI increased 0.1% month-over-month (m/m) and 7.1% year-over-year (y/y), while core CPI (ex-food and energy) increased 0.2% m/m and 6.0% y/y, all below consensus expectations.

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    Is the labor market as strong as investors fear?

    Today’s investing landscape is dominated by a sentiment that may seem odd at first glance: namely, that good news is bad news. More specifically, good news for the economy is bad news for the stock market.

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    Have international equity markets already priced in the worst?

    International equities are down -13.6% year-to-date (in U.S. dollars), with multiple contraction and weaker currencies dragging on returns, as investors price in higher rates and more uncertainty about fundamentals.

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    Just how bad (or good) is economic growth?

    The prevailing economic resiliency coincides with softening inflation, which gives the Federal Reserve an opportune window of slowing inflation but solid growth to tighten monetary policy to an appropriately restrictive stance and maintain that level for a period of time before growth starts to bite.

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    Are banks capitalized for another recession?

    Numerous data suggests the US economy will enter a recession in the next 12 months; 46% of professional forecasters in the Philadelphia Fed Survey project a recession, the Conference Board recession probability model predicts a 96% likelihood of recession, and the U.S. Treasury yield curve is deeply inverted which has been a decent predictor of prior recessions.

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    Have global markets reached a turning point?

    For many investors, the “pivot” promise from October’s CPI print elicited a sigh of relief. Given that stock prices are higher, bond yields are lower and the dollar has softened in the weeks after the inflation reading, it would appear that markets have reached a turning point.

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    How do the midterm elections impact the outlook for markets and the economy?

    Markets often rally after elections, and the 2022 midterms were no exception with markets up 5.9% during election week. In the future, market prognosticators will point to this as another data point confirming the pattern of post-election rallies.

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    What is the outlook for long-term returns?

    The start of this month saw the release of our 2023 Long-Term Capital Market Assumptions, where we forecast economic growth, inflation, and asset returns over a 10–15-year horizon. The current report stands in stark contrast to prior years, which were characterized by a relatively muted outlook for returns from both stocks and bonds.

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    What led inflation to slow in October?

    There's still a question of whether the Fed will allow its policies to work their way through the economy, as there is still a risk that they knock the economy into a recession to combat an inflation problem that, based on this report, is receding on its own.

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    How can Millennials ride out the current market storm?

    2022 has been a year of remarkable volatility across asset classes. Stocks, bonds and cryptocurrencies have been rocked by a confluence of challenges that could be described as a “perfect storm.”

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    3Q22 Earnings: Higher costs

    The third quarter saw yet another decline in the S&P 500, as concerns that higher rates and tighter monetary policy would weigh on economic activity and earnings remained top of mind for investors. While the rally in October has been refreshing, it seems unlikely it is the beginning of a new bull market; investors are looking for signs of a pivot at the Federal Reserve (Fed), whereas best case they will get a pause.

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    Is a slower rate hike path on the horizon?

    The committee’s tone remained hawkish and inflation-vigilant, but investors took initial relief at new statement language acknowledging the significant amount of tightening the Federal Reserve (Fed) has already delivered and the lags with which it will affect the economy and inflation.

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    How should I invest around the midterm elections?

    The 2022 midterm elections are just days away and many investors are wondering how these elections may impact their portfolios. Although many investors fear the impact of politics on their portfolios, history shows election-related market volatility is typically short-lived and it is policy, not politics, that influences the economy and markets over time.

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    Is this a bear market rally?

    Markets picked up steam recently, anticipating that the Federal Reserve (Fed) could follow a 75 bps rate hike in November with a smaller 50 bps rate increase in December. Markets have been rallying since mid-October, up 7% since the mid-month low. But is this just another bear market rally?

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    What are the investment implications of China’s Party Congress?

    As usual, China has been going through its own economic, policy, and political cycle. While the rest of the global economy is slowing down and facing the possibility of recession ahead due to elevated inflation and rapid policy tightening, China’s economy began to slow down over a year ago and already went through a contraction in the second quarter.

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    When will earnings estimates begin to decline?

    2022 has been a volatile year, and this volatility has been almost entirely driven by fluctuations in valuations; until recently, earnings estimates had been climbing or stable.

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    What to do with fixed income?

    The hallmark of core bonds is their diversification benefits and lower volatility to risk assets, which make them an important ballast in portfolios. However, with bonds down double digits this year , investors are struggling with their fixed income allocations.

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    What should investors expect for 3Q22 earnings?

    The third quarter earnings season is set to kick-off with the large U.S. banks releasing results. Our current estimate for 3Q22 S&P 500 operating earnings per share (EPS) is $53.82, representing year-over-year (y/y) growth of 3.5% and quarter-over-quarter (q/q) growth of 14.8%.

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    Does inflation impact younger and older investors differently?

    In the aftermath of the COVID pandemic, global economies are reeling in the face of decades-high inflation, brought about first by unprecedented levels of fiscal stimulus and more recently by supply-chain snarls, which in turn are largely attributable to China’s continued COVID-zero policy and the ongoing war in Ukraine.

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    Are falling job openings a sign of cooling labor markets?

    For investors, while it may seem reasonable to assume a fall in job openings would precede an uptick in the unemployment rate, the still huge gap between labor demand and supply suggests that job openings can come down further without meaningfully pushing up the unemployment rate.

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    What just happened to Gilts and Sterling?

    In recent weeks, a series of fiscal and monetary developments led volatility to spike in the United Kingdom’s government bond and currency markets. By our lights, the combination of these events amplified uncertainty about the UK’s institutional architecture and the Bank of England’s commitment to sustainable monetary and fiscal policy.

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    When can the Fed stop hiking interest rates?

    During the September Federal Open Market Committee (FOMC) press conference, Chair Powell noted that the Committee would like to see positive real rates across the entire yield curve as one indication that they have reached an appropriate policy stance.

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    Are markets more in line with Fed rate expectations?

    The Federal Open Market Committee (FOMC) voted unanimously to raise the Federal funds rate target range by 0.75% to 3.00%-3.25%. The tone of the committee remains hawkish given policymakers are “highly attentive” to taming inflation that runs well above its 2% target.

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    How does a softening housing market complicate the Federal Reserve’s quantitative tightening plan?

    The housing market has had a difficult year. Mortgage rates have skyrocketed from 3.1% to over 6.0% and home prices are up 18% year-over-year. As a result, housing affordability has been crushed leading to a sizeable decline in single-family housing construction and mortgage origination activity.

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    What is the risk of a market correction?

    We still believe headline inflation has peaked on a year-over-year basis, but more clarity on the trajectory of inflation will be key in order for interest rate volatility – and therefore capital market volatility broadly – to decline. The Fed looks set to continue raising interest rates in a fairly aggressive way through the end of 2022, and potentially into 2023 if inflation proves stickier than expected.

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    When will the U.S. dollar peak?

    At first glance, a “strong U.S. dollar” may seem like a positive. There are advantages: overseas trips are cheaper for U.S. tourists and foreign goods are cheaper to import for U.S. companies and consumers (helping bring down elevated inflation). However, important disadvantages exist: U.S. exports are more expensive for foreigners and foreign earnings of U.S. companies are dragged lower.

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    Policy and Politics: The Fiscal and Midterm Election Outlook

    The fast-approaching midterm elections and the recent spate of legislation has brought policy and politics back to the fore. This has investors considering several key questions.

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    What should I know about President Biden’s Student Loan Relief Plan?

    President Biden’s announcement on a set of changes to student loan repayment has generated several questions from clients. The most common boil down to: How will student debt relief impact consumers? Will the deficit impact lead to a further rise in inflationary pressures? And, is it likely to be passed?

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    How healthy is the consumer?

    Coming into 2022, investors expected that a healthy consumer – supported by significant fiscal stimulus during the pandemic – would power the economy at an above-trend pace. While this was indeed the case at the start of the year, a series of idiosyncratic factors pushed aggregate growth into negative territory.

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    Is it a bad idea to invest in EM equities during a Fed rate hike cycle?

    In the short-term, rate hikes may pressure EM equities, but not as much as investors may think due to: lower vulnerability to capital outflows, high interest rate differentials limiting outflows, and a greater dependence on China’s cycle versus the Fed.

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    What will a buyback tax mean for dividends?

    The tax on buybacks will be particularly relevant for equity investors given the role share repurchases played in enhancing profit growth during the post-GFC cycle. The big question is whether or not this buyback tax will lead companies to reduce share repurchases and increase dividend payments going forward.

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    How will the Inflation Reduction Act impact the economy?

    This week, the Inflation Reduction Act (IRA), a legislative package that includes climate spending, prescription drug pricing reform, and tax reform, was signed into law. The IRA represents a meaningful commitment to climate goals and should reduce the deficit over the next decade but is unlikely to reduce inflation and will weigh on 2023 profits.

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    2Q22 Earnings: Where have all the earnings gone?

    Earnings will remain the primary driver of returns. With 90% of S&P 500 market capitalization reporting, we are currently tracking earnings per share (EPS) of $47.25 for the second quarter.

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    Will global central banks’ fight against inflation lead to a global recession?

    The broad takeaway is that economic conditions are softening globally, and aggressive central bank tightening is contributing to it. The global economy could avoid a recession if a stronger recovery emanates from China in the second half of 2022, and a soft landing is achieved in regions like the U.S. and Europe, however, that outcome looks increasingly challenging.

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    How should I think about investing in alternatives?

    There are three roles that alternative investments can play in a diversified portfolio – they can provide income, diversification, or enhance returns. Importantly, these are not mutually exclusive; some alternatives – like core real assets – can provide a combination of both income and diversification.

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    Has the Fed shifted more or less hawkish?

    For investors, further tightening is ahead; however, a data-dependent committee suggests an increase in the federal funds rate to above 3.5% in this cycle is now less likely.

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    Is the 60/40 dead?

    Since emerging from the Financial Crisis, a 60/40 portfolio of U.S. stocks and bonds has earned a whopping 11.5% average annual return. However, 2022 has been a particularly challenging year for the 60/40, which declined 16.1% in the first half of the year.

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    Is there a role for private real estate in my portfolio?

    What has not come into question is whether investors will need alternative sources of income and diversification. As such, it seems increasingly likely that private real estate will be part of the broader investment conversation in the years to come.

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    Are we already in a recession?

    Looking ahead, we recognize that recession risk has risen. That said, it seems premature to make a call that we are already in recession today.

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    Does investing in European equities still make sense?

    The tragic war in Ukraine has led to an indiscriminate sell-off in European equities. While headlines weigh on sentiment, the 1Q earnings season was strong for Europe.

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    Will the Fed tip the economy into recession?

    For investors, the Fed has laid out a hawkish path for rate increases with the intent to front load rate hikes. With such aggressive tightening this year, recession risks have risen further in 2023.

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    What should I know about quantitative tightening?

    Even as QT commences, long-term rates are likely to trade range bound between 3.00%-3.5% and be little impacted by balance sheet reduction at first. That said, as bank reserves decline to levels that may restrict bank activity, markets will likely signal the Fed may need to change course.

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    Are you worried about an earnings recession?

    While rising interest rates and a more hawkish Federal Reserve (Fed) help to explain what has gone on with valuations, it was not as clear why earnings estimates continued to move higher. Interestingly, however, companies have begun guiding earnings expectations lower in recent weeks, as it appears too difficult to continue ignoring rising costs and economic growth that is decelerating back toward trend.

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    Should I time the bottom in today’s market?

    Long-term investors are facing a number of challenges today. Multi-decade-high inflation is eroding purchasing power and portfolio values, and recent volatility across capital markets has made the investment landscape look perilous.

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    Are bonds attractive?

    The spike in yields through the first five months of this year has led to some very ugly returns in fixed income.

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    Are we in or headed towards a recession?

    The US economy is showing signs that the post pandemic surge is beginning to moderate, but we do not think a recession is imminent. Nonetheless, stocks are near correction territory, consumer sentiment has soured to levels last seen in 2011, geopolitical tensions are elevated, and prices are higher everywhere; all of which challenge this view.

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    How do investors navigate market volatility?

    The war in Ukraine is causing surging commodity prices, COVID lockdowns in China are exacerbating strained supply chains, and 40-year-high inflation has prompted the Fed to aggressively tighten monetary policy. Together these dynamics are also creating uncertainty about future growth.

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    1Q22 Earnings: Don’t stop believin’

    A re-rating of valuations has led to negative equity returns year-to-date, but importantly, earnings estimates have continued to trend higher. In an environment of rising rates, earnings will be the key driver of returns.

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    When will China’s economy and markets find their footing?

    The Year of the Tiger was expected to be a year of stabilization for China’s economy and of recovery for its equity market, following last year’s tough Year of the Ox. However, instead of positive surprises, investors have continued to grapple with uncertainties, both new and old.

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    Tax planning? Or a plan for taxes?

    At the end of the day, active tax management is a way to take advantage of volatility. Volatility is a hallmark of the capital markets, but it also tends to derail investors and undermine their ability to reach their long-term retirement goals.

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    How aggressive will the Federal Reserve (Fed) tighten monetary policy?

    At its May meeting, the Federal Open Market Committee (FOMC) voted to raise the Federal funds target rate range by 0.50% to 0.75%-1.00% and signaled similar 50 basis point rate increases would be on the table for the next couple of meetings.

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    Does China’s “COVID zero” approach threaten global supply chains?

    Since the onset of the pandemic, global supply chains have been stressed, weighing on economic growth and lifting consumer core goods inflation. Supply chain issues had seemed to peak in December, with some encouraging improvement in the first two months of 2022.

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    How do geopolitics highlight the need for more sustainable innovation?

    Although climate change is a key consideration in sustainable investing, sustainable investing is more broadly about finding companies that are durable in the long run and identifying risks that traditional company analysis may not capture.

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    What’s going on with the housing market?

    U.S. home prices have experienced incredible appreciation over the last decade, with particular strength in the years since the COVID-19 pandemic outbreak.

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    What should investors expect for 1Q22 earnings?

    With financials kicking off the first quarter earnings season this week, our current estimate for 1Q22 S&P 500 operating earnings per share (EPS) is $51.01 ($42.80 ex-financials), representing year-over-year growth of 7.6%.

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    Why is there so much demand for labor?

    The March employment report showed that the U.S. economy continues to recover in the aftermath of the COVID pandemic, with the labor force exhibiting signs of multi-generational tightness.

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    Has the sell-off created an opportunity in growth stocks?

    2022 has seen a volatile start, with many of the growth names that performed well in the initial stages of the pandemic – as well as over the prior cycle – under pressure.

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    Should investors hedge the currency when investing in international equities?

    Over the last 15 years, international equities have underperformed U.S. equities by a cumulative 270%. Currency played a role in this underperformance, subtracting 25%, as foreign currencies steadily weakened against the U.S. dollar.

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    Just how hot is the labor market?

    One of the most critical levers to reduce carbon emissions globally is transportation. Transportation accounts for 16% of global greenhouse gas emissions, with nearly three-quarters coming from passenger travel and road freight.

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    Inflation: A Somewhat Sticky Situation

    As we emerge from this pandemic with inflation now rising at its fastest pace since the 1980s, the biggest question for investors is whether some of this inflation will prove “sticky”.

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    Have markets recovered from the COVID-19 recession?

    Investors have had to process a torrent of information and wild swings in sentiment so far this year.

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    Should I expect a market correction?

    The S&P 500 has marched steadily higher from its March 23rd low against a backdrop of investor skepticism. In previous posts, we have discussed how this rally is being driven by three things.

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    Will the Fed cause inflation?

    The balance sheet of the U.S. Federal Reserve (Fed) has increased by 2.9 trillion USD since the start of March, meaning that in just over eleven weeks it has grown more than it did in the five years following the Financial Crisis.

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    How will COVID-19 affect Sustainable Bonds?

    Global governments have been swift and bold in supporting their economies, building a bridge to get consumers, small businesses and corporates over the present abyss to the other side. Given the unknown breadth and depth of the abyss, more stimulus may be required.

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    Has all EM behaved the same way this year?

    Year-to-date, emerging market (EM) equities are down -17.6%, as a combination of the COVID-19 recession and the oil price shock has led to downward revisions to earnings expectations, as well as weaker currencies relative to the U.S. dollar.

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    Has the Fed done enough?

    Ultimately, the Fed’s next step will be dictated by the pathway of the virus, says Dryden.

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    A Dramatic Backdrop Shift: 2020 Election update

    The next president will necessarily have a different policy agenda now given the events that have unfolded than he would have at the beginning of the year.

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    Infrastructure resiliency during the COVID-19 crisis

    Infrastructure resiliency during the COVID-19 crisis

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    Is now the time to invest in small cap stocks?

    Global markets have roiled in the face of COVID-19 and social distancing, and many investors are looking to “pick up the pieces,” eagerly hunting for the next big opportunity.

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    What does post-COVID leverage mean for investing?

    While many changes are likely to emerge, one clear trend, with far-reaching macro and market implications, is the increase in leverage, says Azzarello.

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    Why are oil prices negative?

    Earlier this week, oil prices turned negative for the first time in history, with WTI trading as low as -$37 a barrel.

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    What will the reopening of the economy look like?

    Over the past two months investors have digested the COVID-19 shock: the fast spread of the virus around the world, the social distancing measures implemented and the resulting economic and earnings recession.

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    1Q20 earnings: Virus oddity

    1Q20 earnings season will provide an important first look at how the ongoing pause in global activity is impacting corporate earnings.

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    What does COVID-19 mean for real estate?

    The industries most impacted by social distancing account for 20% of payroll employment, and consumer spending across those industries account for 20% of GDP.

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    What are the risks and opportunities in high yield?

    Today’s objectively complicated credit market may be an excellent source of future portfolio growth, says Dryden.

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    Will American small business fire its workers?

    Ultimately, how high the unemployment rate gets is dependent on one key question: will American small business fire its workers, says Manley.

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    A COVID-driven spike in claims

    Initial claims for unemployment insurance surged to the highest level ever: 3,283,000, spiking from a slightly revised 282,000 last week.

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    The COVID-19 Relief Bill-Holding the Economy in Suspended Animation

    This paper, written by Dr. David Kelly, reviews the U.S> relief bill and its investment implications.

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    What is the Fed doing and what does it mean for fixed income?

    The U.S. Federal Reserve (Fed) has pulled out its alphabet bazooka in an effort to ensure sufficient liquidity and the smooth functioning of financial markets, while also providing credit to businesses that are affected by the spread of COVID-19 and the stall in global economic activity.

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    What will an earnings recession look like?

    As economists continue to revise down their 2020 GDP estimates, a lot of clients have been asking us about the potential impact on earnings.

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    Can the Fed do more?

    This past Sunday, the U.S. Federal Reserve (Fed) fired a last desperate salvo in an attempt to stabilize financial conditions, the second emergency inter-meeting cut in two weeks.

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    What policy response would help to stabilize markets?

    Coming into this year, we expected an improvement in global economic growth, as 2019’s policy uncertainty clouds dissipated.

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    The investment implications of COVID-19: An update

    The COVID-19 crisis confirms, once again, the value of a diversified portfolio, says David Kelly.

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    What does the latest oil price collapse mean for investors?

    It is important to avoid trying to predict the future; rather, clients are best served by monitoring the present situation and maintaining composure.

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    Should I buy the dip?

    There is not a clear answer. However, what we can provide perspective on, is where we are finding value, according to David Lebovitz.

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    How does Super Tuesday affect the election campaign ahead?

    Former Vice President Joe Biden made a surprise comeback during the Super Tuesday contests, paving the way for a two-person race to the Democratic nomination.

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    Monetary medicine of limited effectiveness

    Even with this Fed action, there will likely be calls for fiscal action to support to businesses suffering from the response to virus fears, says David Kelly.

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    Should I be concerned about the correction in U.S. equities?

    Sentiment, and valuations, are likely to keep markets relatively contained until there is clarity about the extent and length of the outbreak, says Tyler Voigt.

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    What do you like more, value or growth?

    Equity investors spend a lot time looking for where earnings growth will be strong; what doesn't get as much attention is what happens after they're generated.

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    Cash: it’s what you do with it that matters

    "Equity investors spend a lot time looking for where earnings growth will be strong; what doesn't get as much attention is what happens after they're generated."

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    Should investors worry about the jobs market?

    Taken at face value, the fall in job openings is concerning and warrants careful monitoring.

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    What does the coronavirus mean for investors?

    Financial markets have fallen sharply on concerns of the coronavirus, a respiratory illness first identified in Wuhan, China, spreading globally.

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    What is priced in to equity markets?

    Equity market valuations have risen substantially in recent months, with the forward P/E ratio of the S&P 500 now at a level of 18.6x.

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    Should investors worry about inflation?

    Investors are now asking whether inflation could return, threatening the rally in financial markets.

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    Should I wait to buy the dip?

    Buying the dip - the coveted strategy (almost) all investors like to employ.

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    Will tensions with Iran cause an oil spike?

    Rising geopolitical tensions with Iran have led to some fears over potential oil supply shocks out of the Middle East.

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    Why should I stay invested?

    Rising geopolitical tensions with Iran have led to some fears over potential oil supply shocks out of the Middle East.

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