Equity markets' usual year-end Santa Claus rally might get an additional boost
The primary themes impacting the yields of US Treasuries and the pricing of future levels of inflation (via breakeven inflation rates (BEIs)) have changed little in the last few months. They continue to generate a range-trading environment for US Treasury bonds and TIPS.
Growth dynamics and demographics add to the arguments in favour
Does the FOMC hope that with only moderate policy tightening, it can eventually succeed in returning US inflation to objective after an overshoot?
The financial sector had been assumed to be one of the equity sectors that would outperform the broad S&P 500 index in 2018. Robust US economic growth following the passage of tax cuts would boost cyclical sectors and deregulation would enhance profits. But instead of market-beating returns, the sector’s total return up to 27 June was -4.3%, compared to a 3.0% gain for the rest of the index. What are the reasons for the disappointing figures? Might things turn around by the end of the year?
A look at developed and emerging equity valuations to assess which now appear attractive, at least from a stock multiples viewpoint
Small caps are trading at a discount to large caps
We remain long equities and underweight fixed income, notably in the eurozone, but we trimmed our risk exposure
Emerging market debt has been the subject of much interest over the last few years, but recent volatility has created uncertainty about the asset class. We are convinced that besides offering an attractive return/risk ratio and the potential for high returns, current valuations constitute an attractive entry point.
Watch out for the effects of factors such as rising interest rates and the end of central bank asset purchases