An analysis of five international stock markets indicates that published findings of a correlation between US stock returns and the political party in the White House are spurious, highlighting the importance of caution in interpreting historical investment data.

With the probability of recession sometime in the next five years around 70% in our view, now may be a critical time to prepare for when the cyclical tailwind that began last year begins to fade. Over the next five years, the global economy may undergo five significant pivots in the direction and scope of monetary, fiscal, trade, geopolitical and exchange rate policies. Are investors too optimistic about the future economy? We address this and other crucial questions in PIMCO’s 2017 Secular Outlook – our long-term view for the global economy and markets. 

We thought it would be very helpful to review Warren Buffett’s argument in 19991, the last time there was very high expectations attached to technology stocks and to the overall level of common stock prices. We will reference Buffett’s quotes by the year he said them. The sections labeled 2017 offer our current observations on the markets and thoughts from respected experts.

Analysis of the Value factor in the US by sectors. Using price-to-book (PB) or price-to-earnings (PE) results in similar Value factor performance. Some sectors are perpetually expensive while others are always cheap. Sector rotation is higher with PE than with PB.

Expected earnings are increasing nicely – now at a double-digit pace. These have been better predictors than any of the oft-cited bearish valuation methods. The chance of a recession, the biggest historical threat to markets, remains very low. The list of “geopolitical concerns and headwinds” does not translate into an impact on earnings.

“It was the best of times, it was the worst of times…” to borrow a phrase from Dickens’, Tale of Two Cities. As 2016 came to a close it seemed truly the best of times for many. Following the US election, there was renewed hope and optimism for growth initiatives, as well as public policies, which generated a sense of certainty and euphoria about the future.

Jae S. Yoon is the chief investment officer and a portfolio manager at New York Life Investment Management, where he oversees approximately $293 billion in assets. In this interview, he discusses valuations across global asset classes and where he sees the greatest opportunities.

How can equity investors address the triple threat of a low return environment, scarcity of alpha and the tendency to chase performance?

With political uncertainty on the rise in D.C., will market volatility spike? Russ discusses why the economy and credit markets matter more.

This is the final report of our four-part series on trade. This week, our discussion on trade continues with a look at the relationship between trade, employment and inflation. We also conclude the series with market ramifications.

"Three steps and a stumble" was first illustrated by Edson Gould, the legendary market technician from the 1930s through the 1970s. Ultimately the baton was passed from Gould to another legendary market analyst (and my mentor/boss for my first 13 years in this business), Marty Zweig, who incorporated the "rule" into his monetary policy indicator.

Recent introductions of multi-factor Smart Beta products demonstrate causality among its components and an ability to replicate past future pricing. Unclear is the extent to which Smart Beta adequately discerns the directional value of securities at points of inflection to consistently outperform allocated Beta, Index-plus or Alpha portfolio strategies.

Following the election, stock market participants gained optimism on the view that the new administration would push through a reduction in regulations, sharply boost infrastructure spending, and achieve broad tax reform.

Today’s indexing mania is driving the marketing people at the best active fund complexes completely crazy, but the top portfolio managers – that is, the people who really, truly enjoy investing – are seeing a lot of new opportunities.

Robert DiMella is an executive managing director and co-head of MacKay Municipal Managers team, overseeing approximately $20 billion in municipal bond assets. In this interview, he discusses the opportunities for muni bond investors and the outlook for the coming year.

This letter will cover the philosophical underpinnings of my thinking. I’ll also introduce some investment tools (which I will give you access to through a link later on in the letter) that express that philosophy, but you could also design a different answer that fits your own (or your client’s) portfolio construction.

One of the most hotly contested debates in finance is the argument over which is better – active or passive investing. Moreover, this debate has spurred numerous academic studies that claim to identify whether passive outperforms active investing or vice versa.

Why understanding Environmental, Social and Governance (ESG) factors is critical for credit analysis of European utilities.

K2 Advisors’ Founding Managing Director David Saunders is speaking at the prestigious SALT conference this month in Las Vegas, where he’ll discuss the liquid alternatives landscape and why he thinks now’s the time for investors to consider this asset class.

When looking to help diversify a multi-asset portfolio, one of our experts presents the case for when and why an investor might consider senior loans.

In this Q&A, Kathleen Gaffney and Henry Peabody share their outlooks for the bond market and the impact of stronger global growth, and how they seek to position the Multisector Income strategy.

Active management has the potential to provide diversification, generate income and mitigate the risks of higher inflation and rising rates.

In this multi-part report, we offer reflections on trade to provide insight into how to use macroeconomics to judge the veracity of certain claims.

Socially responsible investing (SRI) has captured nearly a quarter of U.S.-based assets. New evidence from one of the world’s largest sovereign wealth funds shows that those investors are sacrificing significant performance. Indeed, they are giving up more than 1% a year – effectively doubling the typical 1% AUM advisory fee.

Our analysis of three first-generation smart beta strategies shows factor-replicated portfolios are ineffective substitutes for their smart beta counterparts, exhibiting poorer performance, high turnover, and low capacity.

Despite our negative outlook, markets have the final say. It’s important for us to make a partial retreat from our bearish position, temporarily at least. It’s much easier to be objective when we don’t have a lot at stake.

China A-shares could shortly be included in a key international benchmark for the first time—in a way that highlights smarter efforts by the West to help China integrate fully into global markets.

Incoming “soft data” and “hard data” conveyed vastly different U.S. economic conditions as the first quarter unfolded.

Economic data in April was mixed, with first-quarter weakness lingering in some risk indicators. Overall, though, the news was positive, and most forward-looking indicators we track bounced back from decreases in March.

As the VIX flirts with single digits, the S&P 500 has been flopping around like a live fish on deck. But for U.S. investors in foreign equities, the music continues to play as cheaper valuations overseas and a weaker U.S. dollar pushed fund flows into other geographies.

It is unfortunate that Blanchett’s article misses the central point that the Quantitative Analysis of Investor Behavior (“QAIB”) measures the mutual fund investor experience and not the areas raised as concerns. In fact, the author admits by his ignorance of its contents that he has not read the report that he so roundly criticizes.

I presented at a recent advisor conference alongside a famous economist. He told a story about an investment manager who told him, “You know… it is easy to pick out the investment amateur in any room.” He said, “He’s the person who says, ‘it’s different this time’.”

After years of relying on monetary policy to stabilize the U.S. economy, policymakers have redoubled their commitment to stronger pro-growth fiscal policies. As post-election Washington sets its sights on growth-oriented reforms, policymakers should remember that economic growth in any nation is determined by the four basic factors of production—land, labor, capital, and entrepreneurship.

A spending rate is a key factor for retirees' success. Just as budgeting and savings discipline are bedrocks to reach your retirement objectives, having a personal spending plan during your retirement is critical to prevent you from potentially outliving your dollars.

Lower correlations, coupled with greater dispersion of volatility across sectors, highlight the importance of asset allocation and could lead to more opportunities for outperformance by active managers over passive beta strategies.

So far in this earnings season, with over half of companies having reported, the energy sector has experienced the biggest earnings surprise. Earnings have come in almost 23% ahead of analyst estimates, nearly double the surprise of the consumer discretionary sector.

The middle class is a fairly new development in economics. Up until the last century or two, most societies had a tiny wealthy elite and great masses of common laborers. We now regard having this group in the middle, not wealthy but with their own assets and spending power, as a great achievement. We don’t want to lose it, but some people fear we will.

At the beginning of the year, most market strategists were in agreement that interest rates were going to rise in 2017. The reasons varied: some saw inflation climbing, pushing yields higher; others worried about bigger budget deficits; a few blamed the Federal Reserve, which was thought to be planning to raise short-term interest rates two or three times and shrink its balance sheet. Whatever the reason, interest rates were expected to head higher, so seeing the 10-year U.S. Treasury yield here at 2.3% is a surprise.

Though uncertainties remain, we have a broadly positive outlook for commodities in the next year.

Proposed US tax cuts—if they happen—would be a nice boon for corporate bottom lines. But for most companies, the boost to underlying earnings power would likely be fleeting. To find tax-reform winners, look for the exceptions.

Oil is back in the news, with the price of benchmark West Texas Intermediate (WTI) crude roughly doubling from last year’s lows driven by steady demand and coordinated supply cuts by Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers.

Consumer spending accounts for 69% of Gross Domestic Product. Last week, the data on the household sector were mixed. The Conference Board’s Consumer Confidence Index surged to a 16-year high.

Successful advisory firms value their culture of compliance, and continue to build on the program they have in place. Here are a few best practices.

As some market worries have been put to rest, there is a growing appetite for new ones. Pundits who say that things look OK are not very exciting. Last week we saw a shift in attention. Despite healthy earnings and good economic data.

One way to use information on stock valuations and interest rates in a systematic way is to estimate the break-even level of valuation that would have to exist at given points in the future, in order for stocks to outperform or underperform bonds over various horizons. Investors presently face a dismal menu of expected returns regardless of their choice. Indeed, in order for expected S&P 500 total returns to outperform even the lowly return on Treasury bonds in the years ahead, investors now require market valuations to remain above historical norms for the next 22 years.The good news is that this menu is likely to improve substantially over the completion of the current market cycle. The problem is that current valuation extremes present a hostile combination of weak prospective return and steep risk.

Franklin Templeton Fixed Income Group talks monetary policy, European politics in the April Global Economic Perspective.

The popularity of smart-beta products has raised concerns that certain factors have been “overgrazed” – that their expected return has been driven down due to popularity-driven demand. A new research paper purports to refute this concern. But its logic is flawed and practitioners should be highly skeptical of its conclusions.

Portfolio manager Ken Fincher of First Trust Advisors provides an update on closed-end fund discount trends in the first quarter of 2017.

The persistence of exceptionally low volatility has created a perception that it will be “smooth sailing” for stocks. Evidence suggests just the opposite, however; now is the time to focus on protection.

In 2016, Research Affiliates published a series of articles challenging the “smart beta” revolution. We pointed out that, while there is merit in many factor tilt and smart beta strategies, performance chasing in these strategies—buying the popular outperforming strategies whose relative valuations are at extremely high levels—can be just as dangerous as performance chasing in other realms of asset management.