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Market Outlooks
AAM Viewpoints: And the Beat Goes On... Liquidity and Leverage
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Continuing the discussion from last week about the discussion of Leverage and Liquidity, we focus a bit on why there are some economic and market metrics that don’t corroborate the “feelings” that permeate discussions.
Market Outlooks
AAM Viewpoints: Liquidity and Leverage, Forever Dance Partners
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With the tariff two step currently being displayed between the United States and China, it is easy to overlook two components of a late-stage economic cycle that often foreshadows the severity of the next downturn. While the downturn does not appear imminent, it is still an event that one should be prepared for as the capital market prices will price it in before the actual occurrence.
Market Outlooks
AAM Viewpoints: Regardless of Outcome, The U.S.-China Trade Dispute May Accelerate the U.S. Manufacturing Renaissance
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Most reports suggest that trade talks between the U.S. and China are progressing at a measured pace and that an agreement is near completion. The expectation that a deal will be reached looks to be priced into the stock market, so a positive outcome would likely be met with sighs of relief instead of champagne corks popping.
Market Outlooks
AAM Viewpoints – Corporate Bond Trends
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In the 4th quarter (Q4) investors began preparing for the credit cycle to come to an end and concerns mounted related to potential corporate downgrades. Corporate spreads widened during Q4 and presented opportunities for investors in lower investment grade and high yield credits as Q1 2019 was a strong quarter for risk assets. The ICE BofAML US Corporate BBB Index spread tightened by 52 basis points (bps) and BB credits are 140 bps tighter than they finished 2018 (see the Option Adjusted Spread (OAS) changes in the table below). High yield bonds have rallied more so far this year making BBBs look cheap on a relative basis. The lowest investment grade bonds, rated in the BBB range, lagged high grade credits in Q4, but were up 5.57% in Q1 and have annualized 7.91% over the past 10 years.
Market Outlooks
AAM Viewpoints: Municipal Bond Portfolios, Recent Federal Tax Reform, and Unintended Consequences
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With the new federal tax legislation capping state and local tax (SALT) deductions at a maximum of $10,000 for Federal taxes, in the case of high state income tax states, the unintended consequence may be that Municipal Bond investors residing in those states have become too highly concentrated in their own state-issued municipal bonds.
Market Outlooks
AAM Viewpoints: Earnings Recession Likely – Why This Time Might Be Different
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First quarter earnings season is upon us and for the first time since the second quarter of 2016, the S&P 500 Index will most likely report a decline in aggregate year-over-year earnings. Piling on, estimates for the second quarter are essentially flat and will likely be revised into negative territory if the downward trend continues. This sets up the possibility of back-to-back quarters of negative earnings growth or an “Earnings Recession” which typically does not bode well for the equity market.
Market Outlooks
AAM Viewpoints – It’s All About the Income
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While one can be certain of very little in the “world” of fixed income investing, history shows us time and time again that total returns rely on “time in the market, not timing the market.” The closest thing to a universal truth for fixed income investors is that long-term returns are almost always dominated by coupon and income.
Market Outlooks
AAM Viewpoints: Valuation Brief - Size, Sector, and Style
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Since the 4th quarter sell off, equity markets have come back with a vengeance. The S&P 500 is up 13.11% year to date (as of 3/15/19), while the S&P 400 is up 14.39%, and S&P 600 is up 12.42%. With such a rally already on the books, I want to hone in on where we still see some value.
Market Outlooks
From Curve Inversion to Value Conclusion?
The hot topic of the week is the inversion of certain yield curve metrics as evidenced by the near hyperbolic increase in web searches for “recession” and “yield curve.” We have written about the curve’s inversion over the last 18 months and why the broad market interpretation may be a bit skewed today than it has in the past, with a few highlighted here.
Market Outlooks
AAM Viewpoints: Economic Problems in Europe and China Are Real – So Are The Opportunities
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Two of our high conviction best ideas for 2019 include Emerging Markets and Europe. After a dismal year for global equity markets in 2018, both markets have gotten off to a great start in 2019 roughly keeping pace with the United States. According to Bloomberg, year to date through March 15, Emerging Markets (as measured by the MSCI Emerging Markets Index) is up an impressive 9.73% while the S&P 500 outpaces being up 12.8%. Europe (as measured by the Eurostoxx 50) is up a respectable 12.87%. What should we expect for the balance of the year?
Market Outlooks
The Federal Reserve: Give the People What They Want
The FOMC (Federal Open Market Committee) meeting was highly anticipated but only in the sense that many were looking for confirmation on the degree of dovishness that matched the market’s belief. It has shifted from not being restrictive to stepping toward more accommodative.
Market Outlooks
AAM Viewpoints: Checking All the Boxes
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The indefatigable bull market may be a pleasant surprise to some, but certainly a nagging disappointment to perennial bears. For the ardent bulls, its elasticity is without precedent and very rewarding for those with the conviction to stay the course through periods of heightened volatility.