Note Précis August 25,2019: Jackson Hole & G-7 Over,Challenges Remain – Market expectations seemed globally that conditions underway since 2009 would in late 2019 continue. Nonetheless, challenges remain. Unlike prior G-7 emphasis on commonality of purpose but like 2018 in Canada also, the G-7 of 2019 at Biarritz France has aired disagreements. A swathe of political uncertainties remain, from trade to geopolitics and in between. Far from genteel, personal attacks among leaders appear escalated and which could stymie compromise efforts.
Central bank gatherings like those at Jackson Hole, Wyo. U.S. appear less rigid after a low point in 2007 when alternate views were greeted with mirth and disdain. In Europe, the ECB appears most fervent on further ease, replete with negative sovereign yields widening. Monetary ease may indeed develop but a so-called monetary put to buttress markets may still not come to pass. In the current iteration at Jackson Hole of August 23-24, 2019, the Federal Reserve appears both suggesting further ease was possible while also expressing concern about its effectiveness given the tussles over trade. Policy confusion appears present.
Currently, fixed income yields are already low, even for this cycle. The reality of equity valuation being elevated cannot be justified only on there being no alternative but does likely indicate some optimism about earnings growth. With earnings such as for the S&P 500 already beyond the steep acceleration of a recovery phase and now in a more mature expansion phase below the long term of 7% annually, more volatility looms ahead.
Across sectors as a late cycle phenomenon, bifurcation in company delivery seems steep. After years of disdain, security selection is likely coming to the fore. A quality tilt seems appropriate, alongside cash reserves and an overweight in precious metals with political and monetary risk levitating. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.