Given the many forces shaping the economy and markets, 2022 will be a stock picker’s—and a bond picker’s—market. Prices are indeed stretched in pockets of the market, but many areas offer attractive potential supported by compelling fundamentals and exposure to growth themes.
The receding pandemic should continue to provide a tailwind. However, as economies begin to normalize, expectations for the future path of monetary and fiscal policies are shifting. And as markets adapt to a post-Covid economy, we expect increased volatility, more rotational markets, and leadership changes. The risk of a policy error has also increased at the margin, with future Federal Reserve leadership and policy more uncertain today than a month ago.
We continue to experience an unprecedented market environment. We were able to again outperform in the third quarter, aided by the significant repositioning we had done in portfolios amidst the sell-off in March. However, we are wary of the risks to the market rally, including elevated valuation multiples...
A point we have increasingly been making is the self-mitigating nature of: (1) market returns and (2) capital market assumptions (“CMAs”). There is a demonstrable pattern of CMAs coming down after significant rallies in equity markets and going up after a decline.
The pandemic has delivered a global growth shock, but in doing so, it has accelerated the timeline for several mega trends that we have been actively investing in, such as productivity enhancement (robotics, automation, and software), e-commerce, electronic payments, and health care.
Primed for growth, Asia’s health care sector helps capture consumer spending in the region.
What a difference three months can make! Today, the bear has run back into its cave, the Fed has turned dovish, interest rates have plummeted, and stock markets have mostly recovered.
Change is good, but some things shouldn’t—and one of those is quarterly publication of my overview of the economy and the markets. I always like to start this commentary with an overview of the economy, as most stock market events are driven by economic events.
Energy equities have underperformed the S&P 500 materially over the last five years. While spot oil prices have risen significantly over the last twelve months, longer dated oil prices have not, and energy equities have remained under pressure.
U.S. stock market indices continue to reach new highs and major global economies are growing in sync for the first time in a decade. Corporate earnings have reached record levels, business confidence indicators are climbing while inflation remains in check.
UFC and mixed martial arts (MMA) have seen their popularity grow in recent years from relative obscurity, banned in many states, to the mainstream. Does the current fight represent a view of the future (e.g. the NFL and the upstart AFL) or a novelty (e.g. the XFL)? The fight highlights the topic of convergence and its current poignancy, from boxing to politics to investments.
Historically, we have not been able to find many interesting, really high quality companies in China which has largely centered on our discomfort with corporate structures, governance and alignment between majority and minority shareholders. While this continues to be the case, recent trips by members of the team have certainly provided plenty of food for thought.
It would be pleasing to see a month go by without a terrorist atrocity somewhere in the world but, sadly, May was not going to be one of those months. The Manchester abomination is just one more in a string of similar attacks. It is difficult for the authorities anywhere to protect citizens from extremists who operate alone, wear no uniform and are prepared to die for their beliefs. There will, undoubtedly, be many more unhappy months.
One of the most common questions that we’ve heard/received from clients over the past year has been our view on active versus passive management. Active management has come under significant pressure due to its underperformance relative to passive over the past few years, particularly in the very competitive US large cap space, as well as the broader theme of fee compression in the industry. This theme is well illustrated by mutual fund flows over the past couple of years. According to Morningstar, passive fund strategies in the U.S. experienced inflows of $505 billion in 2016, while active funds saw outflows of $340 billion. Will this trend continue, or will active management again have its day in the sun?
With markets seeking to avoid similar toe-stubbing in the policy arena, we examine the drivers of the fixed income markets for the near term. In doing so, we consider President Trump’s fiscal policy influence, Janet Yellen’s monetary policy impacts and evolving exogenous geopolitical dynamics. So, who or what will determine the market’s course moving forward?
2016 played host to the unexpected with the U.S. presidential election and Brexit vote. 2017 will bring its own events that could have consequences for global markets.
The holiday season is here, and so is the deadline for gifting contributions to 529 accounts — an attractive opportunity for those wanting to ease the soaring cost of college for family members.