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While the drop back in oil prices which we forecast would probably mean an end to the recent outperformance of the energy sector, we doubt it would halt several other features of the rotation trade. Notwithstanding their wobble over the past week or so, …
30th June 2021
We doubt that US equity REITs would significantly outperform US equities in a period of higher inflation. US REITs have performed strongly in Q2 so far, with the 13.2% return from the FTSE Nareit Equity REIT index beating the 7.5% return from the MSCI USA …
24th June 2021
Although portfolio rebalancing by US pension funds may have played a role in depressing Treasury yields, it is likely to have been a small one in the grand scheme of things. After all, they own only a small share of the Treasury market and the actions of …
17th June 2021
The retreat in US Treasury yields over the past month or so seems at odds with the US economy’s fundamentals, and we doubt that it will be sustained. Our forecast that the 10-year yield will end 2021 well above its current level informs our view that US …
16th June 2021
The record allocation of US households (and non-profit organisations) to equities chimes with the broader evidence that the valuation of the US stock market is high by historical standards. With that in mind, while we are not forecasting a crash any time …
11th June 2021
Today’s US Employment Report has failed to awaken the Treasury market from its slumber this quarter. We think, however, that long-dated yields will rise again in due course after their surge earlier in 2021. Admittedly, over the next few years we don’t …
4th June 2021
Although Japan’s stock market has substantially underperformed its counterparts in the US, UK and euro-zone during the past few months, we don’t expect it to remain a laggard. Chart 1 shows the relative performance of MSCI total return indices in US …
28th May 2021
Although we think that the recent outperformance of the energy and materials sectors will soon come to an end, we still expect the financials sector to continue to fare better over the next few years than sectors, such as information technology (IT), …
24th May 2021
Although the spread between 10-year sovereign bond yields in the US and Germany has narrowed so far during the second quarter of this year, we doubt this will continue for much longer. To re-cap, the spread surged in the first quarter. This reflected a …
19th May 2021
Although the valuation of the MSCI UK Index has become even more attractive compared to those of the MSCI USA Index and MSCI EMU Index since the outbreak of COVID-19, this is partly due to its sector composition. Even so, we remain of the view that it …
14th May 2021
In this Update , we take a look at the valuations of a broad range of the “risky” assets that we cover on our Asset Allocation service. We think that six key points stand out. First, in absolute terms the valuations of risky assets look quite high almost …
While commodities and US equities often move in the same direction, this is not always the case. We expect poor returns from commodities over the next few years, but reasonable returns from US equities. The correlation between the annual returns from the …
29th April 2021
Although the valuation of the US stock market is now approaching its peak during the dot com bubble, we doubt that it will reach such giddy heights. This reflects our forecast for a renewed rise in long-dated TIPS yields and judgement that US corporate …
28th April 2021
Given the outlook for corporate earnings and Treasuries, we don’t expect the recent partial unwinding of the rotation trade in the US stock market to last. On the contrary, we expect the rotation to resume. To re-cap, the rotation that began last November …
22nd April 2021
If enacted, President Joe Biden’s corporate tax reforms could become a significant drag on US equities and hit the earnings of technology, pharmaceuticals and biotech companies particularly hard. However, political wrangling could mean the changes …
9th April 2021
The recent drop in the price of gold below $1,700/oz. has illustrated its greater sensitivity to US long- than short-dated real yields. Although the price has nudged back up above this level at the time of writing, we expect it to fall back to an even …
31st March 2021
In light of a raft of recent forecast changes, this Update presents the latest returns projections of our Asset Allocation service for the next couple of years. (See Chart 1.) We think six points are worth highlighting. First, we forecast that the returns …
26th March 2021
We are sticking to our view that the US stock market will gain a bit more ground this year and next, despite revising up our end-2021 and end-2022 forecasts for the 10-year Treasury yield. (See here .) We also generally expect developed market (DM) …
24th March 2021
While the stock market fared much better than the economy in the US overall during the past ten years, we do not expect that to remain the case. A country’s stock market and its economy will grow at the same rate if there are no changes in the ratios of …
17th March 2021
Although we do not expect US bond yields to keep on climbing sharply, we nonetheless think that the recent “rotation” in the US stock market has further to run, given the upbeat prospects for the economy. As we have discussed previously (see here & here …
12th March 2021
Too much inflation can spell trouble for equities if it results in tighter real monetary policy or slower growth. But while we expect inflation to pick up in the US, we do not expect either of those outcomes anytime soon. That is a key reason why we …
10th March 2021
In the US, this week’s slide in equities in the face of a renewed rise in real government bond yields might seem puzzling, given the rosy prospects for the economy. But the argument that the stock market should be indifferent to rising TIPS yields if they …
5th March 2021
We doubt that Treasury yields will continue to climb rapidly. However, that would be another reason to expect the returns from US REITs to fall short of those from ordinary US equities over the next few years. US REITs appear to have so far largely …
25th February 2021
Although we forecast a further small rise in the 10-year Treasury yield this year, we doubt that this will upend the US stock market. Admittedly, higher Treasury yields increase the “risk-free” nominal rates at which future corporate earnings are …
Although we expect oil prices to rise a bit further this year, we doubt that we are in the early phase of a new “super cycle” in commodities. In fact, we project that the returns from commodities will lag those from US equities considerably over the next …
19th February 2021
While we still expect US Real Estate Investment Trusts (REITs) overall to fare reasonably well over the next couple of years, we no longer anticipate that they will outperform the US stock market. US REITs have underperformed US equities as an asset class …
5th February 2021
The relative valuation of the US stock and corporate bond markets is another piece of evidence against the idea that equities in general are currently in a bubble. Their relative valuation today contrasts with the situation before collapses in the stock …
22nd January 2021
While we doubt that the US stock market’s current valuation will prevent it from making further gains, the fact that valuations are much lower in other parts of the world suggests to us that equities there could outperform over the coming years. Much …
15th January 2021
We don’t think that there is a bubble in the US stock market. Yet even if we are wrong, it may inflate further before bursting given the outlook for the economy and monetary policy. To re-cap, one widely watched gauge of the US stock market’s valuation is …
14th January 2021
We anticipate that UK mid- and large-cap equities will fare much better in 2021 than they have in 2020, provided vaccines prove effective in winning the battle against COVID-19. The MSCI World Index includes mid- and large-cap equities in 23 developed …
23rd December 2020
We disagree with the idea that the valuations of most “risky” assets have risen to unsustainably high levels. In fact, we think that the valuation of the US stock market could have scope to rise a little higher, and the spreads of US corporate bonds fall …
17th December 2020
Although the level of “Equity Q” for the US non-financial corporate sector has risen to a record high, we are wary of concluding that the stock market is in an unprecedented bubble that is bound to burst. To re-cap, Equity Q – which was popularised by the …
11th December 2020
We think that the outperformance of equities in EM EMEA and Latin America relative to those in EM Asia in November is a sign of things to come, as the world recovers from COVID-19. The outperformance of the MSCI EM EMEA and Latin America indices relative …
30th November 2020
We anticipate that MSCI’s benchmark index of mid- and large-cap equities in the US will underperform its index of those in other developed markets, as investors continue to focus more on the roll-out of effective COVID-19 vaccines than on the current …
25th November 2020
US equity real estate investment trusts ( REITs) have underperformed ordinary US equities considerably in 2020 despite a plunge in US Treasury yields, which usually provides more of a boost to the former than the latter. However, we expect US REITs to …
20th November 2020
The relatively low valuations of US equity REITs influence our view that they will outperform ordinary US equities over the next two years or so, provided that COVID-19 is contained. While a few sectors of the commercial property market, such as …
11th November 2020
While there could still be more twists and turns to come after this week’s elections in the US, in general we expect equities there to outperform Treasuries between voting day and the end of 2022. The S&P 500 has risen significantly since voting day, even …
6th November 2020
While the final results are yet to be determined, whoever wins the US presidency probably faces continued gridlock in Congress. That may explain why the moves in markets overall so far have been limited. Admittedly, Treasury yields have fallen as the …
4th November 2020
We think that energy commodities will claw back a bit of the ground that they have lost relative to industrial metals over the next two years or so, as some cyclical factors linked to COVID-19 which have weighed more heavily on the former unwind. However, …
3rd November 2020
We expect TIPS to continue to perform quite well, and better than conventional Treasuries, in the next few years. But we see a risk of higher inflation thereafter. That would, however, probably only cause TIPS to perform poorly, even if not as badly as …
28th October 2020
We think that MSCI’s indices of emerging market (EM) equities in Latin America and EMEA will reverse some of their recent underperformance relative to the MSCI EM Asia index over the next few years, just as they did following their sharp falls during the …
26th October 2020
A renewed rise in longer-dated Treasury yields in response to growing expectations of a large US post-election fiscal stimulus would test the Fed’s resolve to keep monetary conditions extremely loose. We suspect that it would want to keep those yields …
15th October 2020
Our current views of many assets and the US dollar are influenced by our forecast that the yields of conventional Treasuries will remain firmly anchored, even as expected inflation increases. We are sticking to that forecast for now, despite this week’s …
7th October 2020
The fallout from COVID-19 will probably keep inflation subdued in the near term . But there is a risk of significantly higher inflation further ahead if earlier policy stimulus starts to push prices up sharply and central banks either fail to nip it in …
28th September 2020
We are not convinced the Fed is sowing the seeds of the next crisis by pursuing very easy monetary policy, even if this contributes to higher asset prices. Instead, history suggests the main factors inflating bubbles that pose serious risks to the economy …
24th September 2020
Although we think a further shift in real yields in the US vis-à-vis other major economies will keep the dollar under pressure, we expect the overall move to be far smaller than those of the 1980s which were accompanied by big swings in the greenback. So, …
4th September 2020
We suspect that some of the recent underperformance of energy stocks will unwind over the next few years if, as we forecast, the prices of energy commodities grind higher. Nevertheless, we think that the longer-term outlook for the sector is far from …
1st September 2020
We expect some sectors of the stock market that have underperformed in coronavirus to make up ground on those that have outperformed, assuming the virus is brought under control. A notable exception, however, is financials, which we expect to lag given …
26th August 2020
Political uncertainty often seems to have weighed on the performance of US equities, both in absolute terms and relative to Treasuries, before a presidential election. But another lesson from history is that the macroeconomic backdrop frequently had the …
20th August 2020
While Joe Biden has said that he would clamp down on the US companies, particularly in the technology, pharmaceutical and biotech industries, who book much of their earnings in tax havens, we think that there is a good chance his proposed tax reforms …
12th August 2020
