Investment Insights: Excerpts from our monthly report

Wade Balliet
Posted by Wade Balliet
Investment Strategy

The following are excerpts from the July “Investment Insights” report, produced by the Global Investment Management team. For the full report, click here.

View from street level looking up at several skyscrapers with the sun rising nearby.Market strategy: The solstice of volatility?

There is a reason that the world reports good news in green. Green is the color for “go” at stop lights, green is the color of money – at least here in the U.S. – and green usually denotes positive returns for investments.

Stocks around the globe, including in the U.S., international developed markets, emerging markets, and frontier markets, broad U.S. bonds, and alternative assets were all in the green for the month of July. Keep in mind that some of these asset classes typically move in opposite directions, so this should be considered a rare occurrence. The global synchronization the Global Investment Management team has been noticing and discussing for quite some time is now showing its presence throughout the financial markets.

To be fair, there are a lot of reasons for the markets to be so cheerful. U.S. consumer confidence is high, earnings are solid, unemployment remains exceptionally low, GDP reported close to estimates, certain international economies are markedly improving, the dollar is low and so are interest rates – the list goes on. However, similarly to how twilight can be quite bright just before nightfall, there seem to be growing concerns on the horizon. Labor productivity and consumer spending are becoming increasing risks to economic growth, while the Fed’s plan may have unintended consequences.

Equities: Stocks are up!

U.S. markets seem to be riding the coattails of the synchronized global recovery despite worries domestically. Europe, specifically, has seen notable improvement in economic data over recent years and continued progress in the geopolitical arena seems to be reflected in the rosier outlook for the region. The European Central Bank has also remained exceedingly accommodative and has only recently begun to discuss a possible increase to interest rates later this year.

Asia has been less of a bright spot as Japan continues to see stagnation even after tremendous fiscal and monetary stimulus; China is still a dependable source of growth, but has also seen some unexpected slowdown. The U.S. remains ahead of the curve in terms of the growth recovery and monetary policy, but economic data has become mixed. Continued turmoil within the White House and a gridlocked Congress seem to be prolonged risks to the upside of stock markets domestically.

Fixed income: Much ado about nothing in July

The Federal Reserve held their routine July meeting in the latter part of the month to not much ado. As expected, the Fed took no action but did increase their focus on inflation expectations and reviewing the unwinding of the balance sheet, saying the reduction would come “relatively soon.” Despite early warnings from the Fed, the bond market has still to react to the news. Even with Fed Chair Yellen laying out the specifics of the monthly roll-offs, which would accelerate each quarter, markets may be waiting until the very last moment in September when the announcement is very likely to be made.

Read more of the “Investment Insights” report from July 2017.
Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

Diversification and asset allocation does not ensure a profit or guarantee against loss.

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