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Section Summary
- Market Notes – Early in the quarter (January 4) Fed Chairman Jerome Powell stressed that the Fed would not hesitate to respond with all tools necessary to counteract an economic downturn or increased turmoil in financial markets. As a result of the about-face by the Fed, many areas of the financial markets that had posted significant losses in the fourth quarter of last year, rebounded strongly in the first quarter.
- Equity & Fixed Income Comments – Our portfolio positioning in the equity component of client portfolios reflects our relatively cautious outlook for U.S. equities at the sub-asset class level. We have tilted portfolios towards large-capitalization stocks and value-oriented stocks (including REITs). We also continue to like emerging markets equities where the short-term picture showed signs of improvement in the first quarter. Fixed income investments are positioned for our expectation of yield curve flattening and client portfolios are now generally about neutral duration. We continue to expect corporate credit to underperform. Within corporate credit, we prefer short maturity bonds from high quality issuers.
- Research Focus – An inverted yield curve occurs when the 2-year Treasury yield is higher than the 10-year yield. This happens when the market believes growth will be lower than the change in Fed policy rates. An inverted yield curve is often referred to as a ‘canary in the economic coal mine’, due to its accuracy in predicting upcoming recessions. We discuss the yield curve and what it tells us today.
- Client Focus – Home Country Bias is the natural tendency for investors to be most attracted to investments in domestic markets. For U.S.-based investors this means having a disproportionately large allocation to investments in the U.S. This bias can limit the investing opportunity set and reduce diversification.