Growth versus value. For many years, that was one of the central debates for investors, analysts, managers, and financial advisors. Growth and value stocks seemed to be the yin and yang of stock investing, with radically different characteristics that attracted investors with different temperaments.
Risk. Mention the word, and many investment professionals pause. Traders, hedge funds, and a few quantitative firms and their algorithms may love risk. But these days, the preponderance of investors, advisors, strategists, and their clients—not to mention the individual investor
Bitcoin has a total market capitalization of barely $45 billion, which is a pittance compared to hundreds of trillions in stocks, bonds, and other financial instruments worldwide. And yet advisors report that Bitcoin is among investors' most prevalent curiosities today.
With the S&P 500 up nearly 10% for the year through mid-June, many investors are nervous about what lies ahead. Even more nerve-wracking is that an outsized portion of the total returns have been generated by just a few stocks.
We are now four months into the Trump administration, and the Washington soap opera is in no immediate danger of cancellation. Aside from a few brief selloffs, markets have been chugging along on a different track, largely shrugging off political drama.
After a dramatic start to the year, with equities rallying worldwide and bond yields rising in anticipation of stronger economic growth, markets have entered one of those eerie calm periods whose very placidity tends to spook investors. It’s springtime, and while the weather becomes progressively milder, investors seem less certain than ever.
Not a day goes by without hearing what appears to be the predominant question for investors, namely, When will stocks come back down to earth? Variants of that query include, Isn’t this bull market getting long in the tooth? And, stocks go up and up, so we must be on the verge of a selloff, right?
For several years, investors have anticipated a “great rotation” from bonds into equities, and for several years, they were dead wrong. In fact, even as equities were quietly rising for the past years, both domestic and international money has continued to surge into bonds. At long last, that is beginning to reverse, which demands a reconsideration of strategies that seemingly have worked so well and so easily for so long. As long as bond prices were rising, pouring money into assets that had a certain return looked like a slam dunk. No longer.
At long last, the presidential election of 2016 is entering its final stages. In one form or another, this election has occupied an outsized place in American life since the middle of 2015, by far the longest and most extensive political campaign we’ve ever experienced. Much of this campaign season’s noise will have little impact on markets, the economy, interest rates, economic growth, or the fate of companies. In many respects, there is an inverse relationship between the furor of this election and its clear impacts—particularly if Hillary Clinton and the Democrats win.
Recent volatility notwithstanding, what has been striking about 2016 as an investing year is how relatively good it has been. In fact, the return on a diversified portfolio this year is competitive with many major asset classes, and has restored (for now) some confidence in the age-old mantra of diversification being among the most prudent of investing strategies.
As stocks climb to new highs, many investors are concerned about whether today’s equity valuations are reasonable. But the debate over valuations and whether equities are frothy often misses a key element: nothing exists in a vacuum.
It is a time-honored tradition in the world of investing to use sports clichés. Yes, it’s a cop out, a failure of collective imagination, but rather than fight it just now, we are going to jump on that bandwagon. And not just sports clichés; we’re going to embrace all clichés—after all, most clichés have a real kernel of truth.
In this election cycle, will investors be winners or losers? Let’s just get this out of the way: the bulk of this year will be consumed by election noise. There is no way around that. That noise, in turn, will drive out other stories, unless there is a major disruptive event (a terrorist attack, such as the recent one in Brussels, a natural disaster, unexpected political upheaval in the world, or expectations of a possible Brexit coming to fruition). That noise also will subtly influence investors’ behavior, or at least how they view the world. There is no way to avoid that.
Step away from the intense bouts of volatility that recently have characterized financial markets, and an important trend emerges that is unsettling investors large and small. With few exceptions, investments simply are not generating the average annual returns that they’ve come to expect.
In case you have been otherwise engaged, it will not come as news that this has been a month marked by market turmoil. As far too many commentators and analysts have emphasized, the first two weeks of the year marked the worst start for U.S. equity markets ever. The Standard & Poor’s 500 was down 8% in the first 10 days of trading.
For the past few months, financial markets have been positioning for a change in Federal Reserve policy to move from “very easy and accommodative” to “easy and accommodative.” The decision of the Fed, finally, to raise short-term lending rates by 25 basis points was met with relief that months of will-they won’t-they were finally over. At the same time, the energy and commodity complex has continued to melt down as prices plummet. The result has been both an unusual amount of turmoil in fixed income markets and a rising chorus of voices anxiously drawing parallels to 2008-2009.
We’ve seen a significant move away from how most people invested in the 20th century—actively and with the at times costly advice and direction of advisors and brokers—towards a more digitally enhanced, passively implemented set of strategies. Some of that trend is inevitable and a useful addition to the suite of options. But as we have said, and continue to maintain, the rush toward passive investing is not without issues, and it must be balanced. There can be too much of a good thing. Today’s rush towards passive, ultra-low cost investing solutions must be tempered with questions: What is being gained? What potentially could be lost?
n August, equity markets finally displayed the volatility that many had been anticipating. Other asset classes, including currencies, high-yield and emerging market bonds, and, of course, energy and commodities, had roiled throughout the year. But equities had been largely immune—until the past month.
So here we are, more than halfway through the year, and although there has been no dearth of daily news, it’s been remarkably static for many investments, particularly U.S. equities. Some sectors — energy and commodities above all — have been spectacularly weak as the global economy continues to adjust to massive supply and demand shifts, especially lower demand from China. A few sectors, notably technology, have done quite well, with several technology indexes up close to 10% year-to-date. But in aggregate, U.S equities have had one of their least volatile and least interesting six month periods in a very long while.
If it seems as though we have focused on crises in Europe for years, that’s because we have. The seemingly endless impasses of Greece and its possible spillover effects on the rest of Europe and then, by extension, on the global financial system, have beset markets and investors for nearly six years.
In today’s investing world, it appears that the search for safety is trumping risk. Although frequent commentary trumpets bubbles in riskier investments, that is not consistent with the hard data on money flows. The result of so much money chasing safety is quite the opposite of what we might want: So much money pouring into assets perceived as safe is actually making those assets riskier. Those riskier assets are attracting less money and fewer players, and as a result, may be safer than they appear. In short, today’s market presents a conundrum: There may be more risk in safety, and more safety in risk.
Larry Fink, the CEO of BlackRock, the world’s largest asset manager, recently penned a letter urging a fundamental shift in corporate thinking. Dispatched to the CEOs of the world’s largest companies, Fink’s letter criticized the relentless pressure of “activist” shareholders who push for immediate returns. He wrote, “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”
On July 1, the film Terminator: Genisys will debut in theaters across the United States and throughout the world. It will be the fourth installment of a series that began more than 30 years ago, which in many ways defined contemporary fears of the rise of the machines: a world where the brilliant programs designed by humans themselves become the masters and turn against their human creators.
Famed Nobel Laureate Robert Shiller made some waves recently when he suggested that he might sell his holdings of U.S. stocks and instead buy European equities. The reason? “Europe is so much cheaper.”
Active versus passive. No, it’s not a debate to stir the passions of the public, but in the world of investing and deciding how to gain exposure to sectors, it is a rivalry up there with the Hatfields versus the McCoys, the North versus the South, the Yankees and the Red Sox. Proponents of active investing tout the ability of astute fund managers to beat the managers and add “alpha,” that amount of outperformance attributable to the skill of the manager. On the flip side, advocates of passive investing point to the long-term inability of most active managers to beat the market and to the high fees charged for sub-par performance, not to mention the tax inefficiencies. And so the debate goes.
‘Tis the season for looks back and looks forward. The financial world will be replete with such missives in the weeks to come, and that is actually all for the best. Given the fluid nature of money and planning and investing, regular assessments of what worked and what didn’t, how the year played out versus expectations, and what might lie just ahead, are vital. While it is true that forecasts about the future usually say more about present sentiment, thinking ahead does provide a framework for assessing likely risks and potential opportunities.
Unless you have been living under a proverbial rock for the past few weeks (though unlikely if you are reading this), you know that the midterm elections in the United States saw a Republican sweep, with enough senatorial seats gained to take control of the Senate, more seats added to their majority in the House, and a few extra governorships picked up along the way.
Faced with the daily noise of markets’ ebbs and flows (and of late, that news has been coming in at a fast and furious clip), it’s easy to overlook the deeper trends.
Yes, a series of geopolitical crises and challenges remain and create current headwinds; yes, few feel overly confident about the tenuous state of the global economy; and yes, the recent market selloff has only fueled legitimate concerns about the future direction of interest rates and equities.
We are, at long last, nearing the end of one of the great central banking experiments: the U.S. Federal Reserve's policy of quantitative easing, which began in the wake of the financial crisis of 2008–2009. And the primary question is quite simple: will interest rates rise and if so, by how much and when
Over the past few months, geopolitical crises seem to have proliferated. First, in March, long-simmering tension between Russia and the Ukraine metastasized to a full-blown crisis after the government of Ukraine was toppled by a popular revolt. That then led to the Russian annexation of Crimea, which was followed by sanctions imposed by the Western states, armed conflict between Russian separatists and the Ukrainian government in eastern Ukraine, and even more sanctions.
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So methinks: Why a market veteran thinks Wall Street is letting fear overtake rational investing https://t.co/07IojRT81i
How much latitude do you think exec has? How elastic is Section 301? https://t.co/il0azUf7Cl
Well, on that, subprime was a catastrophe because of derivative magnification. Would have been fine at 5-6% otherwi… https://t.co/DZLK6o7HpT
Well, for now there are $100 billion of total goods subject to tariffs, which compares to a few trillion of total… https://t.co/xXi2M5iLNf
RT @nxthompson: At least Kawhi will have free health care in Canada.
There’s no reason not to think that one couldn’t imagine that it wouldn’t be Russia.
Thank you for your incisive and insightful feedback, and for your spelling. And I’m all set with housing for now. https://t.co/RB6dYuO9po
The gap is still wide: Trump's words might denigrate the rule of law. His actions, less so | Zachary Karabell… https://t.co/2XVEhhSnKm