Markets in a Minute

Insights on the latest global investment news from our Chief Investment Officers, Omar Aguilar and Brett Wander.

October 15, 2019


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  • Equities:
    Running at a record pace in 2019

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies



    Higher but volatile equity markets in Q3

    U.S. stocks finished modestly higher in the third quarter, while capping their biggest year-to-date gains in more than 20 years. Technology and real estate paced the market's advance, returning more than 25% each through September 30.This performance was achieved in spite of intermittent volatility amid decelerating global economic growth, political uncertainty, and easier monetary policies around the world.

    U.S. remains a bright spot, but the pressure is rising

    Although the U.S. economy remains healthy and supported, concern has been growing about how much longer this will last. The 50-year low in unemployment points to a robust labor market. However, a recent reading showing little progress in employees' earnings growth confirmed that wage inflation remains muted, limiting consumer spending. Meanwhile, the global manufacturing slowdown may be spreading to the service sector as the trade war continues.

    Higher volatility ahead suggests a balanced approach

    In the current environment, we suggest employing a balanced approach. With 10-year Treasury yields in a range around 1.6% and credit spreads tight, we think investors should avoid overstretching for yield. From a sector perspective, higher-quality growth companies in cyclical areas like technology, consumer discretionary, and industrials may benefit if the Fed keeps interest rates accommodative, while energy, financials, and health care could face headwinds.

  • Fixed Income:
    Are you kidding, negative interest rates

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    Negative interest rates in Europe and Japan

    Since the dawn of fixed-income investing, negative interest rates have been inconceivable. Yet today, nearly $15 trillion of global debt has negative yields, which is more than 25% of the world's investment-grade bond market! In much of the developed world, negative yields have become the norm. Might this negative yield contagion spread to the U.S.?

    Can rates go negative in the U.S.

    Until recently, conventional wisdom held that negative U.S. interest rates were inconceivable. After all, the Fed kept rates at zero percent for seven years following the financial crisis, unwilling to join Japan's and Europe's negative interest rate experiment. However, the market—not the Fed—dictates long-term bond yields, and the Fed can't do much to prevent negative rates, especially if inflation is negative. So negative U.S. rates are certainly conceivable, though perhaps unlikely.

    What do negative rates even mean

    A bond with a negative rate means that the sum of all interest and principal payments will be less than what you initially paid for the bond, if held to maturity. Why buy such a bond? Well, even negative yielding bonds may provide flight-to-quality benefits, portfolio diversification, and risk management. As in Europe, when stocks fall, investors often flock to government bonds—even negative yielding ones. This sends already negative yields even lower as bond prices rise. So despite a negative yield, investors can still make money!