Note Précis October 3,2019: Market Gravitas- For the last quarter of 2019, three streams appear for investors. In capital market performance, the last twelve months should be seen beyond a currently popular day- to-day perspective. Global fixed income yields have declined substantially, even into negative yields for several European sovereign bonds. Still, market behavior appears changing. Rotation has not had junk bond yields nor equities moving in lockstep with lower sovereign bond yields which instead have spawned volatility.
In a second stream, central banks appear to be targeting more quantitative ease to boost growth prospects but the impact remains uncertain. Third and not least, political uncertainty seems elevating well beyond the Middle East, not least in the United States, in Europe and for that matter in Asia. In a summer of discord, domestic politics have reared for three of the largest financial centers, New York, London and Hong Kong.
Exchange rates between the major advanced countries appear relatively stable, potentially ephemerally so. In aggregate, emerging country fixed income yields appear also closer to 12 month lows but currency and fixed income crises have appeared especially in Latin America. It suggests systemic risk to be global. We espouse higher than benchmark weightings in precious metals and cash.
Over 12 months, equity markets like the S&P 500 and others seem in a sideways correction. With corporate reporting imminent, valuation notwithstanding and unlike some geographic assessments, global equities have yet to break from U.S. developments. Amid volatility, value appears to be doing better than concept. In equities amid selective credit stress, financials remain globally critical. For defensiveness and value, we prefer stronger Information Technology over the traditional but currently hard pressed Consumer Staples. It also means that despite valuation and due to its heavy weight in Consumer Staples, Europe is unlikely to wrest market leadership from the United States.
Prior Note September 5,2019: Not Time for Heroics.