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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
Three key developments in China over the past month or so are worth highlighting, as they feed into our broader asset allocation forecasts for the next couple of years. First, what started as a regulatory crackdown on a handful of sectors seems to have …
16th September 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
We expect several of the trends that have tentatively (re-)emerged in financial markets recently to persist. First, developed market (DM) sovereign bonds have come under pressure again, and have underperformed risky assets. We have been arguing that the …
12th 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
We no longer expect equities and corporate bonds to outperform “safe” government bonds by anything like as much as we did a couple of quarters ago, and we continue to forecast that some other “risky” assets, including most commodities, will struggle over …
21st July 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
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
We are still anticipating an extremely rapid recovery in the global economy over the rest of this year. But even so, it has become more difficult to make the case that returns from risky assets across the board will remain very strong, at least in the …
10th 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 …
Although we forecast that that the “rotation” in equity markets generally has further to run, as COVID-19 is contained and economies re-open, we project that developed market (DM) Real Estate Investment Trusts (REITs) will continue to underperform DM …
6th May 2021
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
We are forecasting a very strong – but also somewhat uneven – recovery in the global economy over the next couple of years as the pandemic is gradually contained, with three key implications for asset allocation. First, we generally expect government …
16th 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
While equity markets came under pressure towards the end of the month, they generally weathered February’s roughly 30bp rise in the 10-year US TIPS yield quite well, with most major indices still rising slightly over the month as a whole. A more …
2nd 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
We anticipate that US equities will outperform long-dated Treasuries over the next ten years, even though the valuation of the stock market is even higher now than it was at the beginning of the 1930s and approaching its level at the outset of the 2000s – …
16th 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
Extreme speculative movements in the prices of a handful of stocks and of silver have generated a lot of headlines over the past month. But those surges have not been reflected in the performance of risky assets more generally, many of which have taken a …
2nd 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
Although the incoming economic data are likely to remain poor until around mid-2021, we forecast that “risky” assets will continue to outperform “safe” ones comfortably over the next couple of years as a whole. We also anticipate that this will be …
7th January 2021