The post-Fed action in the bond market yesterday was impressive, yet left some begging for answers. If the Fed raised short rates yesterday and reiterated its plans for the subsequent five rate increases through 2018, shouldn’t the long-end be selling off? If it were only that easy.
The interplay between debt and income can be a difficult thing to understand. Here is a useful analogy. Imagine a hot air balloon lying on the ground preparing for take-off.
Since the election we’ve heard the rally in stocks characterized as a “Trump Trade” or a “reflation” trade. We think there is a really important element missing from this analysis that could change very quickly over the next several weeks.
The most recent CFTC commitment of traders report revealed little change in the historic long positioning of smart money bond investors.
Over the past decade, assets invested in ETFs have grown by 746% compared to 88% for mutual funds(1), as many investors and advisors now consider ETFs to be a viable alternative. In this presentation, Steven Vannelli will use Morningstar’s recent decision to merge ETFs and mutual funds into the same peer groups as a starting point for analyzing the similarities—and differences—between these two options. He’ll also identify when an ETF may be a more appropriate choice for clients. Advisors will learn:- The key questions to ask about the pricing, performance, expense ratios and tax impact of mutual funds and ETFs;- Why mutual funds and ETFs with a similar focus, such as those targeting specific geographical regions, may deliver significantly different results;- How to effectively educate clients on the potential benefits and risks of ETFs.
The spread between 30-year US treasuries and 10-year US treasuries has fallen to just 60 bps which is the smallest spread in about 2 years.
While the myth that stock market returns are highly correlated to a country’s GDP growth rate has largely been debunked, there remains a strong, and intuitive, relationship between corporate profits and GDP.
In the month of January, the most important factor correlation to performance of developed market stocks has been dividend yield (DY).
CPI excluding food and energy (core-CPI) increased by 31 bps in January for the largest one month increase since March 2006. Headline CPI increased to 2.54% year-over-year which is the fastest growth rate since March 2012.
Equity returns and earnings estimates should presumably be related. It makes intuitive sense that if earnings estimates are increasing for a sector than equity prices for that sector should trend upwards as well. And this broadly holds up except oddly with the health care sector.