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

Within the current macroeconomic environment where central banks around globe have started to lower interest rates, bond funds and ETFs have become popular investment choices for all kinds of investors. However, their performance is influenced by a variety of risk and return factors that investors need to understand. The first to mention is obviously the interest rate risk. Every investor should bear in mind that bond prices and interest rates move inversely, meaning rising rates can lead to losses, while falling rates increase bond values. A measure to determine the degree of a bond fund’s sensitivity to interest rate changes

Jerome Powell has given the next occupant of the White House an early boost. The Federal Reserve chair’s double-sized rate cut on Wednesday shows the central bank has shifted from battling rising prices to the second part of its dual mandate: the pursuit of full employment. The Fed’s actions come with a lag, meaning the expected increase in home sales, stock purchases, and capital investment will probably only kick in following November’s U.S. presidential election. But whoever wins has a better chance of inheriting a soft landing. The Fed’s long-term projections are the closest the central bank is likely to come to formally declaring victory.

To date, 168 of the 199 companies in our Retail/Restaurant Index have reported their EPS results for Q2 2024, representing 84% of the index. Of those companies that have reported their quarterly results, 72% announced profits that beat analysts’ expectations, while 4% delivered on-target results and 24% reported earnings that fell below estimates. The Q2 2024 blended earnings growth estimate now stands at 14.2%. The blended revenue growth estimate for the 199 companies in this index is 3.7% for Q2 2024. Of those companies that have reported their quarterly results so far, 51% announced revenue that exceeded analysts’ expectations and

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

Stocks may have recovered from their big dip, but they’re still on a rollercoaster. Equities around the world had by Tuesday regained most of the losses they suffered the previous week, after a concatenation of economic and market events triggered a dramatic sell-off. Yet expectations of volatility are still higher than they were, which suggests more ructions lie ahead. Markets have mostly calmed down after the mini-crash that started when Japan raised interest rates and U.S. data showed unemployment at a near-three year high. The Bank of Japan has since vowed to tread more carefully, and the U.S. job market

Developed markets are gradually converging towards their old, pre-COVID economic trends and, so far, appear to be successfully navigating the fastest monetary tightening cycle in decades. In the central scenario in Fathom’s Global Outlook, Spring 2024, which summarises our view for the world economy, financial markets and geopolitics, we no longer contemplate a recession across the major developed economies over the forecast horizon, and instead foresee a growing divergence in economic performance, with the US outperforming its peers — a trend we flagged up in previous Outlooks and which so far has been vindicated. However, there are significant risks around

The current market debate on interest rates has tended to focus only on the money rate of interest, and hence on when the Federal Reserve might start to cut short term rates. The idea is that a cut in rates will make money cheaper and therefore boost equities. Over the last three months, although the five year government benchmark has remained pretty stable, shifting from 4.4% to 4.3%, the five year BBB rate has fallen from 6.2% to 5.7%. This is part of the reason why US equities have outperformed, with the Nasdaq composite index returning 12% in the last

After heaving a sigh of relief for the end of interest-rate hikes, chief executives and investors should be taking a deep breath. Even if the U.S. Federal Reserve starts reversing its policy later this year as expected and makes money available a little more cheaply, corporate borrowing expenses will nevertheless keep rising. To cover them, companies could be forced to seek cutbacks elsewhere. Stock buybacks, new projects and cash-funded takeovers look especially vulnerable. The most immediate and dire consequences of 11 rapid-fire increases in the benchmark U.S. federal funds rate have mostly flowed through the financial system. A series of

Instead of emphasizing change, David Solomon is now touting consistency. The Goldman Sachs chief executive laid out a new way of thinking about revenue on Tuesday, alongside the Wall Street investment bank’s $1.9 billion in earnings for the fourth quarter. It’s a reasonable approach, but one where arch-rival Morgan Stanley is doing even better. When Solomon moved into the corner office five years ago, he set out to make Goldman’s earnings more predictable. Banking everyday customers, and not just the rich, was a big part of the strategy. It flopped, and the aftereffects are reflected in the $1.7 billion loss recorded in 2023

Having the last word doesn’t always ensure winning the fight. But on Wednesday, U.S. Federal Reserve Chair Jerome Powell will try to have the final say of the year in his ongoing tussle with the markets. The central bank is set to keep interest rates steady and Powell will attempt to persuade investors that aggressive rate cuts aren’t imminent despite falling inflation. If he is successful, stocks and bonds will have a tough holiday period. If he fails, the Fed’s plans for next year could be derailed. The market thinks the Fed will cut rates from the current 5.25% to

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