Our Investment Strategy & Research Group provides insights on the markets once a month (Economic Flash), each quarter (Economic Outlook), and whenever the markets or investments warrant special attention.
Back to What We Think.
Within equities, we have grown more cautious due to rising valuations and the recent uptick in volatility, driven by geopolitical concerns. We are evaluating whether our portfolios may benefit from more defensive positioning as we head into Q4.
The recent rebound in US economic growth indicates stable outlook. To bump the growth rate up (closer to 3% or more) changes to fiscal policy are needed, such as tax reform and/or infrastructure spending.
After a very good 2nd quarter for equities, we are far from complacent. Monetary policy is shifting, US tax reform and infrastructure spending are uncertain, and there are ongoing geopolitical tensions. All this will weigh on the bond and stock markets.
High demand for fixed income, due to demographic and economic forces, is likely to prevent a dramatic shift upward in interest rates. With this in mind, we are evaluating higher-yielding areas, such as emerging markets debt, for the portion of our fixed-income portfolios seeking excess return.
The European Central Bank’s stimulus program is starting to pay off, as European stocks led global equities in May. Europe (minus the UK) was up nearly 5% for the month, on improving earnings and stronger economic data.
We continue to find many foreign markets more attractive than the US, due to stronger underlying fundamentals. The election of centrist Emmanuel Macron as France’s President has removed a major threat to Eurozone stability and bolsters our positive outlook on the region.
We think the market rally so far in 2017 has been driven mostly by fundamentals, not the new administration’s proposed fiscal policy. As the markets continue to climb a “wall of worry,” we expect the recent pickup in volatility to continue, making global diversification more important than ever.
With global equity valuations above historical levels and fixed-income markets facing the prospect of US interest rate increases, there are few easy decisions for investors. We continue to stress the importance of diversification across asset classes.
The outlook for US corporate earnings trended lower recently, but that did not slow the momentum of large US stocks. We remain globally diversified in equities, with a core position in traditional bonds.
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While we think US equities are supported by corporate earnings growth and potential pro-business policies under Trump, many foreign markets are less expensive, with similar or higher growth prospects.
This will be a year of transition, with major implications for investors. In our Q1 2017 Economic Outlook, we outline the factors we think will be driving the markets, including the interaction of Trumponomics and global monetary policy, as well as how we are preparing for the year ahead.
While we are maintaining a significant allocation to US equities, we see more opportunity in foreign equity markets due to lower valuations and catalysts for growth, including weak currencies and ongoing monetary stimulus.
We advise caution in making major portfolio moves ahead of Trump policy changes that are far from certain. We do think higher federal spending, interest rates and inflation are likely and expect the Fed to raise rates this Dec. and twice more in 2017.
Market volatility is at highest level since the June “Brexit” vote, as uncertainty about US Presidential Election, US interest rates and Eurozone referendums looms large. With US equity valuations already high, corporate profit growth will be key to performance.
On the cusp of the US Presidential election, economic growth is top of mind. Where will growth come from, now that easy money policies are getting diminishing returns? We explore this and other risks to LNWM portfolios, as well as where we’re seeing opportunity.
Recent concern about European banks, and Deutsche Bank (DB) in particular, is valid. However, we don’t think DB is about to fail. DB’s problems are not related to bad loans but lower profitability and the $14 billion US Dept. of Justice fine, which we think will be negotiated lower. In the meantime, we have no direct exposure to Deutsche Bank, and financials are an underweight in our international holdings.
After a calm summer, we look for a pickup in volatility. Among the catalysts: ongoing economic uncertainty, the US presidential election, high equity valuations, and a possible increase in US interest rates.
US equities perform well, despite already high valuations, deteriorating corporate profits, weakening GDP and slowing manufacturing orders. We are monitoring the recent slowdown in business investment, but still except an improvement in the US economy for the second half of 2016.
“Brexit” pushed interest rates lower worldwide, causing a renewed search for yield. We look for yields to remain low, as we think we’re in a world where too much money is chasing too few attractive investments. In our Q3 2016 Economic Outlook, find out what this means for global markets and LNWM portfolios.
Britain’s vote to exit the European Union (aka Brexit) caught markets by surprise, boosting gold, bonds and other “safe havens.” In the near term, Brexit could affect US dollar strength, global growth estimates and the pace of US interest rate increases.
Within US equities, small-cap stocks continue to seem expensive relative to historical valuation metrics. In foreign equities, the weakness we anticipated in emerging markets continues. Overall, we think developed market equities offer better risk-adjusted opportunities.
We’re now back to where we began the year – thankfully. But is this the calm before an even bigger storm? Find out why we don’t think so, and how we’re positioning LNWM portfolios for the challenging return environment we see ahead. It’s all in our Q2 2016 Economic Outlook.
We look for turbulence in the markets to continue, separating the wheat from the chaff in many sectors and asset categories. In such an environment, active investing focused on security selection and arbitrage is likely to add value.
Risk management is often an afterthought. But here at LNWM it is always top-of-mind.
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