October 23, 2013 | By Scott Minerd
Since the Federal Reserve surprised investors in September by announcing it was not about to start tapering its asset purchases, nearly all financial markets have been in risk-on mode buoyed by the promise of continued easy money. Recent economic data, such as the relatively weak September employment report, has been supportive of continued monetary accommodation. In light of this, the Federal Reserve will likely hold off on tapering until the second quarter of next year.
Interest rates have declined steadily since mid-September, when Chairman Ben Bernanke re-affirmed the Fed’s commitment to monetary accommodation, and have room to fall another 50 basis points before reaching a bottom. Declining interest rates should boost housing activity and should contribute positively to economic growth by the first quarter of 2014.
Fixed-income assets have also benefitted from the decline in interest rates. Relatively low levels of new supply and seasonally elevated fund flows will likely contribute to further spread compression. Domestic stocks are also receiving a boost from the higher volume of flows. The NYSE Advance/Decline line recently broke to the upside, supporting the view that now is a solid entry point for U.S. equities, which should continue to see gains through the balance of 2013.
Lower U.S. Treasury yields and the flood of liquidity from the Fed should continue supporting growth throughout the rest of the global financial system. European stocks are cheaper than U.S. equities, having further room to appreciate. Asian equities should also benefit from the Chinese government’s renewed commitment to keeping its target economic growth rate on track despite structural problems in its economy. Overall, an increasingly bullish outlook has taken hold across nearly all geographies and asset classes, making now an ideal time to put money to work.
Historically, emerging market equities have been closely correlated with the volatility of the U.S. 10-year Treasury yield, as periods of rising volatility are usually associated with the occurrence of major macro risks, which in turn puts downward pressure on emerging market equities. Following the delay of tapering of asset purchases by the U.S. Federal Reserve and the temporary resolution of the U.S. debt ceiling and budget battles in Washington, the U.S. 10-year Treasury yield has stabilized. With the volatility on the 10-year yield falling to the lowest level since May 2011, the current rebound in emerging market equities could continue.
Source: MSCI, Bloomberg, Guggenheim Investments. Data as of 10/23/2013.
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2020 and beyond.
Ultimately, investors will awaken to the rising tide of defaults and downgrades.
In all likelihood, the Fed has successfully staved off recession, but current spreads reflect just how little upside there is in credit.
Brian Smedley, Head of the Macroeconomic and Investment Research Group, and Portfolio Manager Adam Bloch share insights from the fourth quarter 2019 Fixed-Income Outlook.
Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2020 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.