Weekly Market Compass: It was a week of surprise, horror and disappointment. Why didn’t stocks react?Comments Off on Stocks march upward during a tumultuous week in U.S. history
Market predictions and investment resolutions for 2021Comments Off on Weekly Market Compass: Market predictions and investment resolutions for 2021
E-commerce has been like a massive wave that has washed over much of the traditional retail footprint in the U.S. and Europe. Globally, e-commerce retail sales are projected to hit $6.5 trillion USD in 2024, from $4.0 trillion USD in 2020.1 In the U.S., growth in e-commerce retail sales more than doubled in 2020 due to the COVID-19 outbreak, and is projected to grow at 12% annually over the coming years.1Comments Off on Looking for an edge in e-commerce
Three years ago, we wrote about “your car in 5 years’ time,” but it is already time for an update. Voice commands have been fully integrated into new cars, and they’re capable of doing much more than the commercials demonstrating “Alexa, start my car” promised. Making phone calls hands-free in the car seems normal now, and so progress goes – the once fantastic and whimsical ideas becoming commonplace.
The auto companies are serious about innovation. Research and development (R&D) dollars spent in the auto industry were close to $130 billion USD in 2018, only trailing R&D dollars spent in the Healthcare and Information and Communications Technology sectors.2Comments Off on Smart cars are getting much smarter
It’s difficult to fathom how much the world has changed within a matter of months. As governments around the globe launched ever more stringent measures to contain – or at least delay – the spread of the novel coronavirus, life as we knew it transformed before our eyes.Comments Off on Covid-19: Why the “S” in ESG matters
Global Market Strategist Brian Levitt provides additional perspective on the impact of the coronavirus.Comments Off on Answers to FAQs about the recent market disruption – Part 2
The spread of the coronavirus globally has continued unabated in recent weeks. The combination of “business as usual” in Europe and the U.S. and limited testing has exacerbated the issue and increased uncertainty regarding the extent of the outbreak and the ultimate path the outbreak will take. As policymakers take more aggressive measures to control the spread of the virus, we will likely see a large impact on global growth. As the extent of the outbreak has expanded, investors have had to price in a larger impact on growth over a longer period.
Invesco Fixed Income expects Q1 growth in the U.S. and Europe to be weaker than expected and Q2 growth to be significantly negative, as these economies are hit by fear and the impact of measures implemented to contain the virus. The path forward also remains very uncertain, which is a headwind for markets.
China provides a model for us to think about what lies ahead. China implemented strong measures to control the virus, which has hit the economy badly in Q1. China has now controlled the outbreak and is in the process of returning to work. Once the level of daily infection peaked, the process of returning to work started. Infections in the U.S. and Europe are still rising, and it is likely the epidemic will take a while to peak in these regions. It is the impact on growth and uncertainty around the virus propagation that is causing current market action.
It is very important to acknowledge that we believe this is a fundamentals-driven correction, which makes it very different than a financial crisis. The resolution of this situation will likely take time as we watch the epidemic play out in the U.S. and Europe. Financial conditions-driven crises, such as the one in Q4 2018 and the Global Financial Crisis can be resolved quickly by central banks. In the case of fundamentals-driven crises, central banks can only ameliorate, not solve, them. We expect this market to follow a U pattern rather than a V.
We expect risk assets to continue to be volatile, and markets will likely take a while to bottom. U.S. interest rates have been the shock absorber, but there is little room for bonds to rally further, in our view, as we do not expect the U.S. Federal Reserve (Fed) to embrace negative interest rates. The Fed will likely cut rates close to zero, but we expect the yield curve to remain positively sloped. Lower U.S. interest rates will likely erode the interest rate advantage of the dollar versus other developed market currencies, which will likely weigh on the dollar going forward versus other developed market currencies.
Once considered a niche market within the investment universe, strategies that integrate environmental, social and governance (ESG) concerns into their investment process have hit the mainstream.
This has been driven by several social movements and the recognition that there is still a great deal of work to be done, particularly from a financial standpoint, to address issues ranging from climate change and gender equality to indigenous rights.
Investors who are just beginning to incorporate ESG elements in their portfolio may prefer a passive strategy for a few reasons.
First, a passive approach may offer exposure to a broad large cap segment in the market, which might make it suitable as a core portfolio holding.
Second, you get a level of transparency into which ESG elements are being incorporated alongside the other financial considerations for building the portfolio.
For an ETF, the rules are transparent and public, so the investor can evaluate the strategy before buying into it.
Responsible investing is becoming more mainstream as demand increases for strategies that incorporate ESG factors into their investment process. The drivers come from regulatory pressure, demographic shifts such as the growing influence of millennials, and the greater availability of corporate data on ESG issues. More generally, investors want their investments to align with their own values, especially if it offers the potential for better risk-adjusted performance.Comments Off on The Evolution of ESG
Economic policy uncertainty has for decades been recognized by economists as having the potential to negatively impact economic growth. In 2015, economists Huseyin Gulen and Mihai Ion found that economic policy uncertainty has a strong negative correlation to business investment.1 This built on previous research from the 1980s that showed that high uncertainty gives firms an incentive to delay investment decisions, especially in situations where reversing an investment decision can be costly.2Comments Off on Brexit: The consequences of economic policy uncertainty
An informal Invesco poll of North American institutional investors recently revealed that geopolitical risk was a top concern for 2019. And they’re not the only ones worried: European Central Bank President Mario Draghi recently noted that the risks to the downside have increased, blaming, among other things, “the persistence of uncertainties related to geopolitical factors and the threat of protectionism…” In his annual letter to investors in January 2019, Seth Klarman of Baupost warned of the threat of geopolitical disruption: “Social frictions remain a challenge for democracies around the world, and we wonder when investors might take more notice of this.”Comments Off on Populist, nationalist movements are on the rise: What could this mean for the global economy?
As we look toward the opportunities and challenges to come in 2019, our base case is positive, with the expectation that global economic growth is likely to decelerate modestly, yet remain solid. We expect major economies to slow from above-trend growth toward on-trend growth, which should contain inflation, as major central banks normalize policy.Comments Off on Three themes we’re watching in 2019, and their implications for institutional investors
In the US, we believe peak levels of growth are behind us, although we expect annual growth of around 2.75% to persist through the first half of 2019 before slowing. Fiscal stimulus is still having a positive effect on growth, but will likely wane in the second half of 2019. In addition, the positive financial tailwinds that have been driving the economy may turn more neutral as monetary policy continues to tighten. Therefore, while consumer spending will likely be additive to growth in the first half, as the boost from tax cuts winds down, the question is how much will the consumer want to spend thereafter? Consumption has grown at an unsustainably high level, in our view, over the last several quarters, driven by stronger consumer confidence and tax cuts. A meaningful slowdown in consumption could have negative implications for broader growth. These effects mean that risks to economic growth are higher in late 2019 than they have been in previous points in the cycle.Comments Off on Fixed income: Gauging the ripple effects of softening economic growth
As we look forward into 2019, we believe there is continued potential for positive US equity returns, but slowing economic growth may mean more frequent downhills — and more investors losing their way — than during the market’s climb of recent years. Observing the weight of the evidence, we have moved into a late-cycle environment. In our view, the path forward will not rely on choosing growth versus value, or small-cap versus large-cap. We believe it will rely on identifying “share-takers” (companies that can gain market share from technology-enabled advantages in their business model and in consumer behavior) and avoiding “share-losers” (companies that have simply been buoyed in recent years by the expanding economic environment).Comments Off on U.S. growth equities: Change is the fuel for growth
As we look out to 2019, we believe there are three key themes that will persist into the new year.Comments Off on Global economy: Three themes to watch in 2019
2018 has been a relatively volatile year, however this has been limited to bouts of volatility while, rather surprisingly, levels of market volatility overall have remained fairly subdued.Comments Off on Multi-asset: The prolonged global expansion could continue if fiscal and monetary policies remain supportive
Following an idyllic 2017, when equity markets were characterized by strong returns and low volatility, we were reminded in 2018 that markets are often volatile and can go down just as easily as up. In 2019, I believe investors should be preparing themselves for lower equity returns, increased volatility and rising interest rates. Given this outlook, investors would be well-served (in my opinion) to consider the addition of alternative investments to their portfolios.Comments Off on Alternatives: Alternatives may be an answer to challenging investment environments
Strong growth in developed economies should continue to support favorable real estate fundamentals in the near term. The baseline scenario remains very positive, and global listed equities’ earnings yields are providing a positive spread over local government bonds, a sign that real estate is still fairly priced. Yet macro risks to the outlook are perhaps now greater today than in prior years; many are increasingly global in nature. They include rising populism, an escalation of the US-China trade war, a monetary policy normalization misstep, a disorderly Brexit or a China debt crisis. Should any one of them materialize, it would have the potential to derail the global growth outlook to a measurable degree.Comments Off on Real estate: The outlook for real estate fundamentals is positive, but risks remain