Financial Markets Monitor

Q4 2017: Financial Markets Monitor
Data has been distorted by the violent hurricane season, but the U.S. economy is improving. Recession risk is quite low. Elsewhere, the "macro sweet spot"—solid economic growth and low inflation—persists globally, especially in Europe and Japan.

Q3 2017: Financial Markets Monitor
The U.S. economy continues to plod along, with a slight uptick in Q2 after a sluggish Q1. We do not expect a “breakout” in the second half, but rather, a continuation of the economy’s growth rate in the 2.0–2.5% range.

Q2 2017: Financial Markets Monitor
U.S. economic expansion is on solid ground, aided by improving growth trends overseas. Despite full valuations the equity bull market is intact, supported by:

  • Low recession risk and tame inflation
  • A gradual path for interest rate hikes by the Fed
  • Earnings growth, with potential upside from corporate tax cuts

Q1 2017: Financial Markets Monitor
Donald Trump’s pro-growth message spurred a post-election U.S. equity rally. Domestic stocks again outperformed most foreign markets, as the strong U.S. dollar suppressed overseas returns. A post-election sell-off left investment-grade bond returns barely in positive territory for the year. The high-yield market rallied in sympathy with equities.

Fixed Income Market Review

Q3 2017: Fixed Income Market Review
The Federal Reserve announced the beginning of its balance sheet reduction program. The Fed has stated its goal of a gradual and predictable runoff of portfolio holdings with interest rates resuming the role of primary tool of monetary policy management.

Q2 2017: Fixed Income Market Review
Markets, given the lack of recent inflation, have not bought into the Fed’s projections. Market expectations for both inflation and Fed action have diverged from Fed guidance.

Q1 2017: Fixed Income Market Review
Despite the growing acceptance around rate normalization, longer-term rates are lower since the March tightening, and odds of future rate increases have diminished for a number of reasons.

Q4 2016: Fixed Income Market Review
U.S. Election results had a much greater impact on market yields. Expansionary fiscal policy, potentially funded by an increase in the budget deficit, is projected to increase inflation and reduce the need for extraordinary monetary policy.