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Although we think there is still a decent case for UK equities to continue outperforming those in the US over the next few years, we don’t expect the UK’s stock market to perform significantly better than stock markets in the euro-zone over that period, …
26th January 2023
The powerful re-opening rally in China’s stock market has eroded a large part of the valuation gap that led us to judge that equities there were relatively appealing a couple of months ago. That said, we think there’s still some scope for it to continue …
18th January 2023
We think that the prevailing yields of high-grade 10-year government bonds in other major developed markets (DMs) support the idea that the 10-year Japanese government bond (JGB) yield would rise a bit further, were the Bank of Japan (BoJ) to end its …
17th January 2023
This Update makes four key points about corporate earnings in the US as the Q4 results season gets into swing. They all feed into our view that the S&P 500 will remain under pressure until the spring and underperform Treasuries as a recession there begins …
13th January 2023
While euro-zone equities face some meaningful short-term headwinds which threaten their recent run of outperformance, we still expect them to fare better than US equities over the next couple of years. Euro-zone equities broke a long run of …
Although valuation premia in certain parts of the US stock market shrank significantly last year, we think there is still some room for this to continue in the coming decade and weigh on their relative performance. To re-cap, there was a marked reversal …
6th January 2023
The surge in government bond yields around the world in response to today’s decision by the Bank of Japan (BoJ) to tweak its policy of Yield Curve Control (YCC) highlights the risks to international markets posed by the country’s huge investment overseas. …
20th December 2022
This is part of a series of reports outlining our key macro and market calls for 2023. Click here to view the full series. Our latest Asset Allocation Outlook can be found here . Two of the three topics we expect to dominate the global macroeconomic …
15th December 2022
The real returns from both US equities and 10-year Treasuries have often been quite good in the couple of years after past peaks in core inflation in the US, but the period following peak inflation in the early 1980s was an exception. We think that this …
12th December 2022
Even if oil prices don’t rebound substantially in the near term, we doubt developed market equities in the energy sector will reverse course and underperform the rest of the stock market next year. Developed market (DM) energy stocks have outperformed the …
9th December 2022
We suspect that the S&P 500 will make a new cyclical low by the spring of 2023 as a shallow recession gets underway in the US, before rebounding to end next year higher than it is now. Our forecast is that there will be a mild economic downturn in the US …
8th December 2022
Despite the rally that began in October continuing throughout November, US equities still underperformed their European counterparts in common-currency terms last month. Admittedly, exchange rate effects played a big role in that as the US dollar weakened …
2nd December 2022
While the progressive inversion of the Treasury yield curve may seem inconsistent with the recent rebound in risky assets in the US, they had already discounted some bad news about the economy. Nonetheless, we still think there is scope for the rally in …
30th November 2022
We think the stretched valuations of Indian equities compared to those elsewhere will prevent the standout performance of Indian equities seen so far in 2022 being sustained over the longer run. The performance of India’s stock market has been fairly …
28th November 2022
We doubt the recent outperformance of equities vis-à-vis government bonds in the US will persist over the next three to six months, given our view that the economy there is heading for a mild recession in the spring of next year. We do think, however, it …
25th November 2022
Our downbeat economic forecasts for the euro-zone underpin our view that equity markets there will fall further in the coming months. Within the region, we think the downside risks for equity prices are largest in southern Europe. Even after falling by …
18th November 2022
We suspect the underperformance of US equities that has accompanied the US dollar’s slump so far this month will become a feature from mid-2023, as the currency eventually comes under sustained pressure. Since the end of October, MSCI’s USA Index has …
16th November 2022
The news that the authorities in China plan to “optimise” their response to the pandemic while not abandoning their zero-COVID policy has coincided with a surge in its stock market. There is still a risk that this somewhat lighter-touch approach will lead …
11th November 2022
We doubt the recent underperformance of UK high-yield corporate bonds relative to those in the euro-zone will continue given the relative outlooks for monetary policy and economic growth. Corporate bond yields in developed markets (DMs), as measured by …
10th November 2022
Brazil’s financial markets have been some of the world’s best performers lately, supported in part by the prospect of centrist policymaking by incoming president Lula. With the presidential election now complete, and Lula set to be inaugurated soon, a …
8th November 2022
Despite stabilising a bit recently, the valuation of UK mid- and large-cap equities in general has fallen recently in both absolute terms and relative to comparable indices elsewhere. While that doesn’t imply that they are bound to outperform in the …
25th October 2022
Although relatively low equity valuations sometimes point to a greater chance of outsized returns over longer time horizons, we do not think that this is the case for China’s stock market. After all, we expect Chinese companies to face several long-term …
20th October 2022
The spread between the 10-year Gilt yield hedged in US dollar terms and the 10-year Treasury yield has widened dramatically of late. But given our forecasts for short-term interest rates in the UK and the US and the unhedged government bond yields in …
14th October 2022
We suspect that the reduced liquidity of inflation-protected Treasuries vis-à-vis their conventional counterparts is one reason why the price of gold has not fallen as much as might have been expected in the face of a surge in long-dated TIPS yields. …
We think that traditional “defensive” sectors of the US stock market – consumer staples, health care and utilities – will continue to hold up better than “tech-orientated” sectors – information technology (IT), consumer discretionary and communication …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Although we think that US equity REITs may have further to fall, we don’t expect them to continue to underperform the broader US stock market. The key reason is that we don’t expect Treasury yields to rise further. In fact, given our forecast for the …
7th October 2022
We think the US stock market will fall further even after Treasury yields drop back, as the equity risk premium rises and expectations for earnings are downgraded amid a deteriorating economic backdrop. Treasuries have exerted a big influence on US …
Although the latest sell-off in Gilts has been driven in part by expectations for higher interest rates, the accompanying fall in sterling suggests the risk premia attached to UK assets has risen. In our view, in the absence of a concerted attempt to …
27th September 2022
The surge in bond yields that has accompanied the ratcheting up of rate expectations in the US has soured the outlook for the stock market there in three key ways. First, by raising the required return from equities. Second, by undermining the economic …
23rd September 2022
The recent decline in oil prices has weighed on some equity market indices and come alongside a decline in US inflation compensation, but we don’t think those moves will unwind much even if, as we expect, oil recovers a bit. Oil prices have now fallen …
15th September 2022
Notwithstanding the big policy announcements in the UK this week, we still think that the pound and the UK stock market will struggle over the rest of this year, but expect 10-year Gilts to rally. We set out what we think the “Energy Price Guarantee” …
9th September 2022
Despite the rise in volatility lately, compensation for risk across several major asset classes still seems quite low relative to history. That means, in our view, that if volatility were to remain high, it could spark further selloffs across asset …
We expect the spread between the yields of 10-year German and Swiss government bonds to widen further over the remainder of this year. The spread between 10-year German and Swiss government bond yields has widened sharply this year , with the former …
25th August 2022
We think the macroeconomic backdrop that we envisage is consistent with certain “defensive” sectors of the S&P 500 – utilities, healthcare and consumer staples – outperforming over the rest of this year. Notwithstanding its rebound over the past few …
17th August 2022
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
10th August 2022
Although the spreads of many “risky” bonds have risen significantly this year, some aren’t currently at levels that have typically been followed by substantial future outperformance of their “safe” counterparts. Credit spreads have generally increased on …
9th August 2022
While China-Taiwan tensions haven’t yet caused ructions in global financial markets, any escalation that threatened to disrupt trade and/or financial flows almost certainly would. This Update explores the potential ramifications of such an event across …
5th August 2022
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
29th July 2022
US equities have plunged this year, but the S&P 500’s valuation remains a long way from looking low on most measures, including Shiller’s CAPE. This is a key reason why we expect the returns from US equities over the next decade or so to fall well short …
25th July 2022
Although we doubt that they will fare quite as badly as they have in recent weeks, we still expect the energy and materials sectors of global stock markets to underperform over the next couple of years. Worries that high inflation, and the large interest …
19th July 2022
While a lot of attention has focussed naturally on the potential implications for the JGB market of a further tweaking of the Bank of Japan’s Yield Curve Control (YCC), the country’s huge investment in markets overseas means that they too might …
15th July 2022
The resurgence in China’s stock market may already be over. We forecast that the MSCI China Index will struggle alongside major equity indices elsewhere over the next year or two, as China’s economic recovery underwhelms and many of the policies which …
12th July 2022
As forecasts for corporate earnings in the US finally start to come down amid worries about the outlook for the economy there, this Update considers the implications for equities and bonds. For most of this year, equity analysts have continued to paint a …
8th July 2022
We doubt that aggressive policy tightening by developed market (DM) central banks will be followed by a series of financial crises in major emerging market (EM) economies in the way that it has at times in the past. Even so, we still suspect that global …
27th June 2022
We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we …
24th June 2022
The prospect of weaker economic growth has reduced the appeal of US banks’ equities, even though they may yet benefit from a renewed rise in long-dated Treasury yields and still appear relatively undervalued. In a Focus published last November, we argued …
23rd June 2022
The prospect of even tighter Fed policy than we had previously envisaged (see here ) raises the risk of a worse outcome for the US economy and corporate earnings further down the line than we had assumed. So, we now suspect that the 10-year Treasury yield …
15th June 2022
The prospect of tighter Fed policy than we had previously envisaged (see here ) presents upside risks to our forecasts for the 10-year Treasury yield as well as downside risks to our forecasts for the S&P 500. The moves in financial markets have been …
14th June 2022
Despite the sharp fall in the US stock market this year so far, US equities still appear much more highly valued than their peers in the rest of the world. While that might not tell us much about the outlook for relative returns in the near term, …
10th June 2022