Filtered by Subscriptions: Asset Allocation Use setting Asset Allocation
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
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
For much of this year, expectations of tighter Fed policy have driven up Treasury yields, weighing on the US stock market’s valuation in the process. That has changed since we published our last Asset Allocation Outlook , as Treasury yields have dropped …
31st May 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
So far, the sell-off across bond and equity markets this year has not triggered major signs of systemic risk. If that were to change, central banks would probably have to step in to prevent a destabilising cycle of panic selling and money market distress …
20th 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
Although we suspect that inflation in the US has now peaked, we don’t think that this will prevent either long-dated Treasury yields from rising again or the stock market there from coming under renewed pressure until the middle of next year. Indeed, we …
10th 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
Given that the past couple of months has seen the outbreak of war in Ukraine, surging commodity prices, growing concerns about inflation, and increasingly hawkish noises from the world’s major central banks, it is not surprising that US Treasuries have …
31st March 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 Russia’s financial markets have unravelled since the country’s invasion of Ukraine, global markets have so far held up relatively well. But the mood seems to have turned a bit in recent days, and there are now some early signs of financial stress …
3rd March 2022
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
Although the Fed is poised to step on the brakes to tackle the highest rate of inflation in four decades, we don’t expect the yields of US equities and Treasuries to rise to anywhere near their peaks in 1982 after the central bank jacked up rates. …
18th 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 …
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
Although we expect a further rise in government bond yields to undermine the returns from most “safe” assets, we don’t expect it to be big enough to bring the prices of most “risky” financial assets crashing down. Nonetheless, we think that the returns …
31st January 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
2021 is on course to be a relatively good year for most investors. Admittedly, it has not been entirely without its casualties. Equities in China and much of Latin America, for example, have struggled, against a backdrop of growing political risks. …
21st December 2021
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
News of the spread of the Omicron variant has put COVID-19 back at the top of many investors’ list of concerns. While on a far smaller scale, the impact on markets so far has been qualitatively similar to that during the first COVID-19 meltdown between …
30th November 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
