Investment Insights: Keep your chin up
This weekly report presents insights from our Global Investment Management team.
Both stocks and bonds entered a slump over the past few days as rising yields weighed on equity prices.
On Friday, the 10-year Treasury yield reached 3.23% – the highest level since 2011 – during an investor selloff likely sparked by Fed comments signaling further rate hikes on the horizon. The unemployment rate declined again, falling to 3.7%, according to the Bureau of Labor Statistics. The S&P 500 has declined 4.73% since yields started climbing earlier this month. Global stocks have not been spared either as geopolitics and monetary policy continue to put pressure on prices; the MSCI ACWI lost 2.24% as of Tuesday.
Trade talks, or lack thereof, between the U.S. and China have been a key geopolitical issue for global financial markets. President Trump recently announced he will not participate in any trade discussions with Chinese President Xi Jinping at the upcoming G20 summit in November unless the Chinese government provides a list of trade concessions beforehand. Chinese stocks, measured by the Shanghai Stock Exchange Composite, have declined 15.59% so far in 2018. Most recently, the government has responded to their slowing economy and struggling financial markets by injecting cash via their central bank and cutting bank reserve requirements. The trade dispute, along with the revision of NAFTA and Brexit negotiations, have been cited by the International Monetary Fund as a drag on overall global growth in their most recent outlook. The organization now estimates world-wide growth at 3.7% in 2018, down from 3.9% in an earlier estimate.
Brazil’s financial markets may be on the mend as stocks rise in the region following the country’s first round of presidential elections. Jair Bolsonaro, a far-right, former army captain, appears to be the front-runner with close to half the votes which may signal a much more conservative administration if he clinches the win. The current economic state of Brazil and how to address rampant corruption will likely be divisive topics during the election. Brazil isn’t the only nation taking a hard look at their business practices. Switzerland is finally ending its cloak-and-dagger policy surrounding offshore bank accounts, and will now automatically share data with tax agencies around the world.
The Global Investment Management team continues to have a cautiously optimistic outlook of the financial markets over the near term. The most recent tactical trade in our strategies reduced the allocation of international stocks and increased domestic ones based on our view of a more attractive domestic risk/return profile and the expectation of increased volatility on the horizon. For now, we continue to see stocks outperforming bonds over the short term, and have put increasing value in alternative assets for their lower correlation to traditional investments.
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. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. 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 do not ensure a profit or guarantee against loss.