The following are excerpts from the most recent monthly “Investment Insights” report, produced by the Global Investment Management team. For more, read the full report.
The U.S. economy hit an incredible record in October; it has now been in an expansion for its 100th month, which is a number that has only been exceeded two other times in history.
Consequently, the equity market domestically has also seen historic gains with positive numbers in the most recent month bringing the year-to-date total return for the S&P 500 Index to 16.91%. Many investors thought a continuation of the upward trend in equities was possible in 2017, but the pace may be surprising to some. The steepness of the climb in global equity returns has actually even increased toward the end of this year with the MSCI All Country World Index excluding the United States gaining 24.19% so far this year.
Much of the increase can be attributable to a generous economic landscape for corporations and consumers. For example, unemployment rates have dropped across the globe and U.S. data reports show unemployment at 4.1% in October, its lowest since 2000. The European Union’s unemployment level is 8.9% and has dropped below its 20-year average in September. A combination of better employment, low inflation, and historically low interest rates has translated into a stronger consumer – better balance sheets, lower liabilities, and more income. The University of Michigan Consumer Sentiment Index hit a level of over 100 in October, which was last seen in December of 2000.
Equities: New trades for a new year
Politics was a key factor for domestic markets again in October, as the special investigation into Russia’s potential tampering with the 2016 U.S. presidential election heated up with a few arrests. To add to the intrigue, ominous comments from President Trump during a meeting with senior military staff left investors uncertain on the tensions between the U.S. and North Korea. Later in the month, the Senate approved a budget measure which also gave them the power to push through a Republican tax plan – an issue that has topped headlines in recent weeks. Despite the ups and downs, equity markets have remained resilient and continue their trend upward alongside economic growth globally.
Fixed income: The Fed’s succession plan
Our team continues to view monetary policy as a flowing plan; however, the succession plan with Powell included seems to signal the Fed will continue on its current path. Implied fed futures probability showed an over 90% chance for the Fed to raise rates as their December meeting based on Bloomberg data. Unsurprisingly, fiscal and monetary policy changes may end up being the largest factors for rates going forward, especially as central banks abroad begin to join the tightening movement. We recently updated our strategies to reduce exposure to mortgages with proceeds reinvested in corporate bonds and foreign bonds.
Read more of the “Investment Insights” report from October 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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