Since President Trump took office on Jan. 20, 2025, the U.S. has been the worst performing stock market of the entire G7. While Trump likes to shoot from the hip when it comes to economic policy, investors in U.S. assets, it seems, do not appreciate this approach. The uncertainty created by further tariffs is also creating a headache for firms who are trying to figure out how their supply chains are going to be impacted, and to what extent higher costs will reduce their competitiveness, thereby negatively impacting their share prices. Exhibit 1: Performance of G7 stock markets One way

During the U.S. presidential election campaign, Donald Trump promised to fix the economy by eliminating inflation, cutting taxes and increasing tariffs. This raises a challenge for asset allocators as to how these policies will hit expected asset returns in the short and long run. The incoming president will inherit a robust economy with a labor market in rude health and unemployment at only 4.1%. Real wages are rising and job openings, although down from post-pandemic levels, are still at the same highs reached during 2018-19, as shown in exhibit 1. Exhibit 1: U.S. Labor Market Indicators Furthermore, the ex ante

Since the federal funds rate hit 5% in March 2023, the bond market has been battling it out with the central bank. The market assumed that the U.S. economy was heading for recession and required more accommodative monetary conditions. This negative outlook has been influenced by the pervasive loose monetary policy that was put in place in 2009, with investors believing that the economy needs lower interest rates in order to function. However, not only have investors forgotten what “normal” bond market conditions are like, they have also forgotten the adage “don’t fight the Fed!” Since the economy emerged from

When Ronald Reagan said that the nine most dangerous words in the English language were “I’m from the government and I’m here to help,” he provoked a storm of protest from all sides of the political debate. Governments clearly can help drive competitiveness through improved skills policies, by investing in infrastructure and housing, as well as supporting innovation through R&D and incentivizing capital investment towards startups. Indeed Reagan embarked upon a radical new industrial strategy – the Small Business Innovation Research program – which between 1995 and 2018 generated an additional $184 billion in value added. But governments and investors

Fixed income funds realized a return of positive 0.50% on average during the first quarter of 2024, marking their second straight quarterly gain and fifth plus-side quarterly return in their last six. Outside of Emerging Markets Hard Currency Debt Funds which saw nice gains thanks to a strong dollar, floating-rate and higher yielding funds were the top performers during the first quarter of 2024.

  Equity mutual funds and ETFs celebrated their fifth quarterly gain in six—with the average equity fund (+6.92%) posting its second straight quarterly plus-side return. LSEG Lipper’s U.S. Diversified Equity Funds (+9.07%) outpaced the other seven equity and mixed-assets macro-classifications for the first quarter since Q2 2023. Q1 2024 had actively managed equity funds (+7.09%) outperform their passive (+5.95%) counterparts by 114 basis points (bps), marking the fourth largest quarterly outperformance by active management since the start of 2013. In this segment, I provide a market recap plus highlight the quarterly and monthly performance results for conventional equity mutual funds

The bond market remains confused about interest rates, which is why it continues to generate such unusual levels of volatility. One possible explanation for this ongoing uncertainty is that there is a fundamental difference of opinion between bond traders who have only experienced abnormal bond market conditions since 2008, and those who are, let’s say, long in the tooth. During the first half of 2023, the US 10 year nominal bond yield averaged just 3.63%, with the 30 year benchmark at 3.78%. The market appeared to be indicating that inflation would quickly fall back to 2% and that nominal demand

The LSEG/Ipsos Primary Consumer Sentiment Index for November 2023 is at 52.2. Fielded from October 20 – November 3, 2023, the Index shows stability for the third consecutive month. The index has shown little movement recently, as it has not had a significant month-over-month change since August. It is now about two points above its reading to begin 2023 (50.2) and remains 1.2 points above its reading from this time last year (50.9). Download the full report here.

In September, the Bank of England’s Monetary Policy Committee paused rates at 5.25% for the second month running. Consensus (and I) got it wrong. Softer inflation figures for the month meant a majority of the committee took a wait-and-see approach. With higher energy prices still feeding through, there may well be more to come. Inflation generally, and in the UK in particular, has proven stickier than many predicted. One of former Federal Reserve Chair Ben Bernanke’s best-known quotes is that the job of central banks is to take the punchbowl away before the party gets into full swing. But is

Federal Reserve Chair Jerome Powell throughout 2023 has been hawkish on inflation and the need to increase and maintain higher levels of interest rates. The market reaction during the first half of 2023 was that this would trigger a recession, given the view that higher interest rates are not sustainable and will result in an increase in defaults and a subsequent fall in interest rates. This narrative of lower future interest rate levels appears to have been influenced by recency bias and the idea that interest rates need to return to lower levels in order to sustain the economy. This

Markets on the whole do a decent job of synthesizing information at the micro level, but they often get the macro signals wrong as was noted by Paul Samuelson. In his 1998 paper, Samuelson argued that there is no persuasive evidence that macro market inefficiency is trending towards extinction. One factor behind this inefficiency is that markets can progress at times based on memory rather than a random walk. This has particularly been the case for interest rates since the Greenspan Put was put on steroids in 1998 when Long Term Capital Management defaulted. The so-called Greenspan Put is where