The third and final set of year-end updates to the Crestmont Research.
It is probably hard to remember after a week or so of coronavirus fears, but during Q4 2019, “risk” assets once again outperformed “haven” assets. This was after two quarters of “haven” asset outperformance.
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One of the most important discoveries in finance over the past few decades is that stocks of firms that share certain fundamental characteristics called “factors” exhibit different return and risk characteristics than the overall market. Critical to investors is the fact that, over long periods of time, certain of these factors have earned excess returns compared to the overall market.
Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2020 and beyond.
Emerging markets are expected to grow more and grow faster than developed markets in 2020, and fundamentals appear attractive for both equities and debt. Trade tensions and global growth prospects are, as ever, the issues to watch in the new year.
The US municipal market registered strong performance in 2019, driven by record demand from individuals and constrained supply of tax-exempt issuance. Both factors grew out of changes legislated in the 2017 Tax Act. As we enter 2020, valuations appear tight versus Treasurys and fair versus corporates and risk assets generally.
The GMO Asset Allocation team has released its latest 7-Year Asset Class Real Return Forecasts
The recent runup in valuations has reduced the margin for error in today’s markets.
Last New Year’s Eve, most would not have forecasted the extent of the gains experienced by the U.S. stock markets this year. On the heels of the worst December since 1931, the Federal Reserve’s (the Fed) 180-degree turn, from restrictive to accommodative policy, fueled the S&P 500’s roughly 30 percent surge and pushed the U.S. economic expansion into record territory.
Looking ahead, we believe the global economic environment will remain supportive for securitized sectors despite potentially slowing economic growth. In the US, we believe strong fundamentals, including robust wage growth and healthy household balance sheets, will provide solid support for real estate and consumer-related credit.
2019 was a very unusual year. Domestic growth whipsawed from strong (over 3%) to concerning (just over 1%). This volatility was compounded by both domestic and global headline factors: a very public trade dispute and very weak global growth.
Emerging markets ended 2019 on a high note, but can the momentum continue? Our emerging markets equity team weighs in, highlighting the market news and events it has an eye on.
A brief monthly update on what's happening in the municipal bond market.
We expect emerging market (EM) fixed income asset classes to continue to perform well in 2020. Though the sector appears to be starting from less attractive valuations than a year ago, in a low-yielding world, we see opportunity for relative performance in credit and local rates and a tactical tailwind for EM currencies.
We expect European investment grade bonds to post slightly positive excess returns in 2020. We believe the sector stands to benefit from healthy supply and demand balances, likely offsetting tight valuations and weakening fundamentals.
Will 2020 be more of the same? Our teams are encouraged by differences they see in the new year; but they remain alert for unexpected downturns.
The US investment grade (IG) corporate bond market is coming off an exceptionally strong year. Declining interest rates coupled with sharply narrower credit spreads contributed to strong absolute and relative returns.
2019 was a triumphant year for the US large cap equity market, with the S&P500 index up 31% on a total return basis. The resolution of two major concerns in the year, namely the US Fed being too aggressive on rate hikes, and the US/China trade relationship hanging in a total impasse, drove the market higher, particularly in 1st and 4th quarter.
Markets appear to expect the Federal Reserve to hold interest rates steady during 2020. In this environment, we think the outflows seen in leveraged loan mutual funds are likely to abate, and possibly change directions.
As long as good economic conditions prevail, significant downside risk in the stock market is likely to be deferred, and the market will likely benefit from its current momentum.
A combination of spread compression and reduced US Treasury base rates contributed to double-digit gains in the high yield corporate credit sector in 2019. However, unlike many years with similar returns, lower-quality, CCC-rated credits meaningfully lagged their higher-quality counterparts. At this point in the extended credit cycle, investors appear wary about the performance of lower-quality credits.
As the year winds to a close, take a look back with us at our top ten favorite blog posts of the year—the thought leadership pieces that sparked the highest levels of engagement among our readers.
We expect to see flows back into UK equity and credit now that some of the Brexit uncertainty has been removed.
A review of last month’s market-moving events across countries and asset classes.
Why should investors pay attention to the China A-share market? We explain why we believe the opening of one of the most liquid and diverse markets in the world has profound implications for global portfolios.
It was a mixed month for emerging markets in November, as shifting expectations about a trade deal between China and the United States continued to drive market sentiment. Our emerging markets equity team explains why US-China trade issues may not be that big of a concern for some emerging markets, and provides an overview of the news and events shaping markets during the month.
Positive returns across asset classes in 2019 may limit tax loss selling in closed-end funds, but we see potential long term value in select sectors where investors can still buy assets at a discount.
While all eyes are on estimated sales throughout December, sector performance for the month is historically not impressive.
From September 10-12, a select group of our investment managers, economists and strategists congregated in London for our annual Global Investment Forum (GIF). The GIF is designed to tune out the day-to-day market noise and focus on key market drivers over the medium term.
-U.S. stocks entered November in the process of finally breaking out of their post-January 2018 trading range. -Along with new highs has come elevated optimistic sentiment; a near-term warning sign. -Spread between the “smart money” and “dumb money” recently reached an extreme.
As China's economy continues its shift toward services and consumption, small and medium-sized businesses are accelerating this transformation.
A number of factors spurred improved investor sentiment in emerging markets over the past month, including an interest-rate cut from the US Federal Reserve. Franklin Templeton Emerging Markets Equity outlines the news and events shaping market moves during October, and the reasons why the team is optimistic about the coming year.
During Q3 2019, “haven” assets were strongest among the primary asset classes. This followed a similar pattern from the second quarter.
October has historically been a volatile month for stocks. But this year, it marked the second consecutive month of positive returns for global equities. Find out why.
Although economic signals are mixed, bottom-up sector fundamentals help inform decisions on sector ratings.
World equity markets have produced strong returns year-to-date, driven by declining interest rates and rising growth stocks. Despite double-digit gains for the MSCI World index, geopolitical gloom, notably trade wars and Brexit, hangs over investors, economies and the share prices of more economically-sensitive companies.
Why active has the potential to outperform passive in fixed income.
Preferred securities represent a relatively underappreciated opportunity for income-oriented investors in an overall low yield environment where attractive investments may seem hard to find. In the current market they offer yields and returns comparable to high yield debt, but with quality and trading characteristics more nearly approaching investment grade credits.
The fourth quarter will provide critical insight into the near-term direction of the US-China trade conflict as well as into whether the Fed will maintain the narrative of a mid-cycle monetary policy adjustment or switch to acknowledging an outright easing cycle.
• Volatility has been the story of 2019. The markets have dealt with uncertainty around global trade restrictions, recession fears and the possibility of impeachment of President Donald Trump.
• We project these headwinds will cause global economic growth to remain relatively weak for the remainder of the year.
• We believe the likelihood of a near-term recession is unlikely and tentative signs of economic stabilization could develop in the next few months.
Emerging markets equities performance was overwhelmed in the third quarter by macroeconomic factors, but we believe going forward, investors could benefit from favorable fundamentals and loosening central bank policies.
Chinese equities were flat in September. A-shares posted slight gains while small caps posted slight losses.
The United Kingdom and the European Union have signaled that a Brexit deal is still possible, with signs of a potential compromise over the Irish border starting to emerge. Although the prospect of reaching a deal before the 31 October deadline does exist, time is running out.
As we look ahead to the closing months of 2019, most of the year’s volatility drivers remain in place. With that in mind, we believe now may be the time to adopt a more defensive posture without deviating from your long-term strategic asset allocation.
The US-China trade conflict has remained at the forefront of investor concerns in recent months, with both governments imposing tariffs on each other’s goods. While continued tensions are likely to result in continued market volatility, Franklin Templeton Emerging Markets Equity nonetheless finds reasons to be positive about emerging markets, with a more dovish global central bank backdrop offering support.
