U.S. Equity markets were down slightly last week, shrugging off a bond market selloff in China, increased geopolitical uncertainty, and the expected increase in the federal funds rate. Ten-year Treasury yields were higher on the week and the dollar continued to rally against the euro and yen, hurting dollar returns in global equity indices.
Recently released data continues to show a world economy gaining momentum. While the U.S. jobs report was mixed, business survey data from the U.S. and elsewhere showed continued and accelerating expansion. The recent rise in bond yields moderated this week as market attention focused on a slate of events including the Italian referendum and upcoming meetings of the European Central Bank (ECB) and Federal Reserve.
The Trump theme discussed in our last commentary continues to drive markets. The promise of infrastructure spending and tax cuts have driven Treasury yields higher and strengthened the dollar almost relentlessly since the election three weeks ago.
So-called “animal spirits” and self-fulfilling expectations can often move markets. However, this rally has been accompanied by solid economic data that supports the narrative of faster growth and inflation. With the risks of a post-election panic diminished, we have reduced fixed income duration in our portfolios in order to avoid capital losses from rising real interest rates.Read more
An unexpected Trump victory in the presidential election introduced a level of volatility not seen since Brexit. The initial selling of US equities in the futures market was quickly reversed but emerging market assets remained depressed as the market tried to guess what Trump trade policies might be.
Equity markets continued to fall last week. The S&P 500 matched its longest losing streak since 1980 with 9 straight losing days as polls indicated a tightening race for president. The search for safety from political uncertainty resulted in rising Treasury prices (and falling yields) throughout the week. While the price action has been painful over the last couple weeks, the economy continues to look good and we still expect a December rate hike from the Federal Reserve.Read more
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