Markets in a Minute

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

September 15, 2019

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  • Equities:
    Emphasize quality and manage your risk

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies

    Trade war and slowdown prompt central banks

    The Fed seems ready to cut short-term interest rates this month, which would mark the second reduction this year. Similar efforts are taking place overseas, with more than 25 central banks easing monetary policies so far this year. This trend could continue as countries globally face slower growth amid uncertainties surrounding the trade war, weak euro zone economic data, and increased political uncertainty around Brexit.

    A well-supported, resilient U.S. economy

    Falling bond yields and inverted yield curves are more indicative of concerns about trade war effects on already-weak global growth than they are a reflection of U.S. recession fears. Consistent with where we are in the U.S. economic cycle, job growth is slowing but modest wage growth and a higher labor force participation rate continue to support consumer spending and the U.S. economy.

    Emphasize quality stocks and watch economic growth

    Now seems like the appropriate time to emphasize quality stocks while watching economic growth and managing risk as the most optimistic scenarios regarding a variety of factors appear fully priced into the equity market. In the current environment, we believe that higher-quality growth companies in cyclical sectors like technology, consumer discretionary, and industrials are likely to outperform stocks of firms in the financials, energy, and healthcare.

  • Fixed Income:
    Inverted yield curves and your mortgage

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    An abundance of refinancing opportunities

    Savers frequently complain that today’s low rate environment reduces interest on their investments. While generally true, today’s environment also means that current mortgage rates have declined and are in many cases lower than rates homeowners have on their existing mortgages. This is a silver lining of the low-rate environment: the potential opportunity to refinance into a lower rate and reduce monthly payments.

    Exploiting the inverted yield curve

    Long-term rates are usually higher than short-term rates, and so it goes with long-term fixed-rate mortgages versus short-term adjustable-rate mortgages (ARMs). However, with the yield curve inverted, rates on short-term ARMs and 30-year fixed-rate mortgages have become quite close. So homeowners in short-term ARMs may be able to refinance into long-term fixed-rate mortgages, and yet pay about the same rate of interest each month.

    Negative mortgage rates may not be so terrific

    A European bank recently made the news by offering negative mortgage rates. Instead of paying interest each month, holders of these mortgages are credited an interest amount. What’s the catch? Negative interest rates are possible because of the super low, and possibly even negative, inflation in parts of Europe. So instead of appreciating over time, their homes may instead depreciate, possibly nullifying the benefit of the negative rate. Be careful what you wish for!