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While we forecast that the US economy will merely slow rather than enter a recession, we still expect twin sell-offs in stock and bond markets to resume, with value stocks and defensive sectors outperforming. Our US Economics Service is the place to go …
8th June 2022
Even if high inflation continues to put downward pressure on profit margins, we still suspect that the consumer staples sector in the US will be a relative bright spot against a backdrop of underwhelming growth and a renewed rise in bond yields leading to …
27th May 2022
Although Treasury yields have dropped back in recent weeks amid signs that inflation has peaked, we don’t think it makes sense to extend duration. Of course, the longer a bond’s remaining life, the greater the sensitivity of its price to a change in its …
24th May 2022
We expect US equity REITs to remain under pressure between now and the middle of next year, given our view of the US stock and bond markets. Nonetheless, we doubt they will underperform US equities substantially given their relative valuations – we see no …
17th May 2022
The struggles of both bonds and equities during the Fed’s rapid hiking cycle of 1994/95 may provide a warning to investors today. The Fed’s 50bp rate hike earlier this week – its first such hike in over two decades – looks set to be followed by a …
6th May 2022
While the valuation of the S&P 500 appears high in absolute terms – even after the falls in the index in 2022 so far – it seems far less stretched once the still historically low real yields of US Treasuries are considered. And it would probably take a …
28th April 2022
Although the fortunes of major assets have varied after high inflation in the US has peaked, we still think the historical evidence may offer clues to their relative performance in the coming years. Last summer, we examined the performances of a selection …
27th April 2022
We think that a period of sustained outperformance from emerging market (EM) equities relative to those in developed markets (DMs) – like that which accompanied the last big bull run in commodities in the 2000s – is unlikely. That partly reflects our view …
22nd April 2022
While the long-running underperformance of US value stocks relative to growth stocks seems linked in part to lower interest rates and structural weakness in the economy, much of it is hard to attribute to such macroeconomic fundamentals. This insight …
14th April 2022
The valuations of mid- and large-cap equities in Japan have become even more attractive compared to those of their US counterparts following a further period of substantial underperformance in common-currency terms. That may bode well for their relative …
12th April 2022
The resilience of the US stock market over the past month or so is hard to square with recent inversions in parts of the US Treasury yield curve. While we do not think that these inversions necessarily presage a recession, we nonetheless suspect that …
6th April 2022
Even though the ejection of Russia from the MSCI EM EMEA Index has changed its country and sector composition, we doubt that this will meaningfully change how it tends to behave. Our forecasts for lower commodity prices and mediocre global growth suggest …
1st April 2022
We think that the poor performance of US REITs in 2022 so far – despite rising concerns about inflation – adds to the evidence that REITs are not necessarily a better inflation hedge than ordinary equities. Reflecting a post-lockdown boom in underlying …
25th March 2022
We doubt Treasuries would underperform US equities as emphatically as they have in recent weeks if oil prices and inflation surged a lot more. Indeed, they could conceivably outperform – as they did at times in the 1970s – if that fostered expectations of …
We think the war in Ukraine and a more hawkish Fed will cause the yield of 10-year US Treasuries and the US dollar generally to end 2022 and 2023 a bit higher than we had previously anticipated. We now also expect DM equities to be a bit lower by the end …
18th March 2022
Their net fall since the invasion of Ukraine means the valuations of European equities are now even lower relative to those of US stocks. While valuations have a mixed track record at predicting returns over short periods, they are key to our view that …
17th March 2022
If the Russia-Ukraine war escalated, we would expect some of the recent patterns in relative asset market performance to continue to echo those during the 1973-74 oil crisis. That said, we wouldn’t expect US equities to perform as badly as they did then, …
11th March 2022
The war in Ukraine has challenged our view that US equities will underperform those in other developed markets (DMs) over the next few years. We are not yet ready to abandon this view while the outlook is still so uncertain. But if real Treasury yields …
8th March 2022
This Update discusses three ways in which the outbreak of war in Ukraine has called into question our asset allocation views. While the situation is fluid and the outlook especially uncertain, it also provides our initial thoughts on how things might play …
4th March 2022
The onset of other major conflicts and military-related crises have often seen global equity indices tumble, while moves in developed market government bond yields have depended on how energy prices and central banks responded. This suggests to us that …
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
Our view that the US stock market will outperform Treasuries again this year is being called into question by a flattening of the yield curve. Nonetheless, we are not anticipating that it will invert, which has often been the precursor to a recession and …
23rd February 2022
With tensions between Russia and Ukraine continuing, the risk of a conflict with far-reaching economic consequences remains uncomfortably high. This Update considers what the impact on global financial markets has been so far, and the potential …
18th February 2022
We suspect that the pattern of returns from commodities and US equities over the next few years will more closely resemble that in 2014-15 – positive from the US stock market, negative from commodities – than the pattern during the 1970s – which was the …
11th February 2022
One of our key calls for 2022 (see here ) is that mid- and large-cap equities in the US will generally underperform those in other developed markets (DMs), and only fare about as well on average as those in emerging markets (EMs), as the Fed raises rates. …
10th February 2022
We envisage an end to the markedly better performance of TIPS than Treasuries since inflation compensation rebounded from an initial, liquidity-distorted, slump at the start of the pandemic. But this view rests on an assumption that inflation will fall …
2nd February 2022
We forecast that equities in other developed markets (DMs) will outperform US equities over the next couple of years. By contrast, we expect equities in many emerging markets (EMs) to underperform their US peers. That divergence in performance relative to …
21st January 2022
When it comes to developed markets (DMs), we suspect that fx-hedged returns will be significantly better than unhedged returns for US dollar-based investors in foreign-currency-denominated assets. As Chart 1 shows, for US dollar-based investors hedging …
17th January 2022
We do not think the returns from many financial assets will be as good in 2022 as they were in 2021. For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an …
13th January 2022
We think that emerging market (EM) equities will continue to underperform their developed market (DM) peers over the next couple of years, even if that underperformance is far less stark than it was in 2021. EM equities underperformed those in the …
Although mid- and large-cap equities have fared better in the US than the rest of the developed world in most years since the Global Financial Crisis (GFC), we think the chances of it happening in 2022 are slim. When it came to the relative performance of …
10th January 2022
After taking on board the Federal Reserve’s recent hawkish pivot, we now forecast that the central bank will raise its policy rate much more quickly than we had previously anticipated. (See here .) This Update highlights three main consequences for our …
17th December 2021
The recent resilience of US real estate investment trusts (REITs) seems to reflect both easing concerns about the Omicron variant and a net decline in long-dated Treasury yields. Although we expect the latter to creep higher over the next couple of years, …
13th December 2021
US households and nonprofit organizations (NPO) lost their appetite for equities last quarter. If they don’t get it back, it may not augur well for the stock market. The Fed’s latest Financial Accounts of the United States reveal that the value of US …
10th December 2021
This Update answers several questions on the Biden administration’s latest proposals for US corporate taxes as well as the global tax deal recently agreed among the world’s major economies. The proposed changes are probably, at the margin, a reason to …
19th November 2021
Even though the S&P 500 has risen by almost another 25% or so this year, we are still not persuaded that the US stock market is in a bubble that is about to burst. Admittedly, the case for the existence of a bubble may have strengthened since around the …
12th November 2021
We think that MSCI’s Emerging Markets (EM) Latin America Index will continue to underperform its EM EMEA Index over the next couple of years, albeit not to the same extent as it has in 2021 so far. In recent decades, MSCI’s equity indices for Latin …
One reason to think that the performance of the US stock market will underwhelm, at least in the long run, is that some of the gaps between the valuations of its most highly and lowly valued companies have become even larger than they were on the eve of …
4th November 2021
While many observers seem to have been surprised by last month’s joint sell-off in US equities and Treasuries, there is no reason in principle why the two assets should be negatively correlated. It all depends on the economic and policy backdrop. Our view …
11th October 2021
While the large fiscal stimulus passed in the US in the first quarter of this year appears to have been a key reason why equities there outperformed Treasuries at the time, we think that the infrastructure and reconciliation bills currently making their …
6th October 2021
Although the pull-back in the S&P 500 last month was probably influenced by a sell-off in Treasuries (see here ), we don’t subscribe to the view that stocks are in a big bubble that bonds are bound to burst soon. We have long made the case that higher …
1st October 2021
This Update compares the valuations of the twelve different “risky” asset classes that we cover on our Asset Allocation service, both relative to one another and to the yields of “safe” assets, as well as explaining how those valuations inform our …
13th September 2021
We think that there is a risk of a period of moderately higher inflation in some major emerging markets (EMs) over the coming years. If that came to pass, it would probably be bad news for local-currency sovereign bonds in these markets, but not …
3rd September 2021
Although the US stock market’s valuation is nearly as high now as it was at the height of dot com mania, we don’t expect the return from it to be as bad in the next decade as it was in the 2000s. To re-cap, the return from a stock market index is …
26th August 2021
Despite growing talk of another bubble in the US housing market, its valuation remains far less stretched than that of the US stock market and is not alarming in our view given the prospects for monetary policy. Our US Housing service is the place to look …
18th August 2021
The further slowdown we expect in China would probably be a headwind for some “risky” assets that are particularly sensitive to its economic cycle. It also informs our view that China’s sovereign bonds will outperform those of developed markets (DMs), and …
4th August 2021
The muted reaction in the markets so far to today’s above-consensus surge in US inflation presumably reflects a view that it won’t have as much of a bearing on economic growth or monetary policy as periods of high inflation have sometimes had in the past. …
13th July 2021
It has become harder to make the case that the stock market in the US will fare worse than those in the rest of the developed world, now that the “rotation” trade has fizzled out. Nonetheless, we still think there are other reasons to expect the …
7th July 2021
The received wisdom is that inflation is worse for government bonds than for equities. Yet the S&P 500 has fared worse than 10-year Treasuries in a couple of periods of high inflation in the US since the 1960s. The definition of a period of high inflation …
1st July 2021