Displaying items by tag: inflation

While markets in 2022 were crushing for many, some portfolio managers at Capital Group are seeing brighter days ahead this year, but are still playing it safe. At a webinar revealing the firm’s asset allocations for this year, managers stated that they are reacting to a changing environment and that the market’s direction will depend on the movements of the Federal Reserve. John Queen, fixed-income portfolio manager said, “The key is inflation, and the path inflation takes from here is really going to determine what the macro environment looks like, what happens with interest rates here in the U.S., and then how aggressively the Fed is willing to combat that inflation if it stays somewhat elevated.” While the adjustments that the firm is making to its model portfolios are small, they are tilting away from growth and moving toward income, according to the panel. For instance, in its growth and income model portfolio, Capital Group moved 5% of its allocation out of a balanced fund and into a diversified fixed-income fund. Michelle Black, another solutions portfolio manager at the firm stated, “For a 20-year horizon, the starting point matters, and starting after a down year means positive outcomes for long-term investors. It’s probably not surprising to hear we have higher expected returns across the board versus one year ago, stemming really from more attractive valuations, especially in fixed income.”


Finsum:Capital Group portfolio managers are tilting away from growth and moving towards income in their model portfolios due to attractive valuations in fixed income.

Published in Wealth Management
Thursday, 12 January 2023 14:37

Fundstrat: Volatility to Fall Sharply in 2023

After a brutal year in the markets, you wouldn’t blame investors for being cautious in 2023. However, Fundstrat’s Tom Lee believes that history favors a 20% stock-market return in 2023. According to Fundstrat, “Historical data shows there is a high chance that the U.S. stock market may record a return of 20% or more this year after the three major indexes closed 2022 with their worst annual losses since 2008.” Lee basis this on the fact that in the 19 instances of negative S&P 500 returns since 1950, over half of those years were followed by the index gaining more than 20%. He and his team believe that three possible catalysts would enable stocks to produce 20% gains this year. The first catalyst is lower inflation. They expect lower inflation to set the stage for the Fed to stop raising rates and eventually start to lower them. Fundstrat also believes that wage gains will slow and volatility will fall. According to Fundstrat, equity and bond market volatility is likely to fall sharply in 2023 in response to a drop in inflation and a less hawkish Fed. Lee and his team wrote in a note that “Our analysis shows this drop in VIX is a huge influential factor in equity gains, which would further support over 20% gains in stocks.”


Finsum:Due to historical data, lower inflation, slowing wage gains, and falling volatility, Fundstrat’s Tom Less believes that the market will gain 20% or more this year.

Published in Wealth Management

According to a recent study by Lincoln Financial Group, market volatility is pushing Americans to refine their financial goals this year. The study revealed that 88% of Americans said they see room to improve their overall financial wellness, while 71% are likely to set financial goals in 2023. The respondents said that inflation and market volatility has made preparedness a top financial priority. For instance, 56% said protection from risk is most important to them, 39% said their greatest money goal is protecting their family, and 26% said guarding their income was a top priority. While data is showing that inflation is beginning to slow, there are still real concerns over whether the U.S. economy could enter a recession this year. This has investors nervous. David Berkowitz, Lincoln Financial Network president, said the following in a statement, "Our research reinforced the importance of financial solutions that can help consumers navigate through market cycles and protect their loved ones. People are not only concerned about having enough to pay their bills, but also saving for retirement and preparing for the unexpected.” For example, 40% of respondents said that financial protection meant being able to comfortably pay for basic living.


Finsum:A recent study by Lincoln Financial revealed that market volatility and inflation are pushing a majority of investors to set financial goals this year to navigate the market uncertainty.

Published in Wealth Management

According to industry group Nareit, REITs are well-positioned to navigate economic and market uncertainty in 2023 due to strong operational performance and balance sheets. As part of their 2023 REIT Outlook, the firm wrote, “despite economic headwinds and weakness in valuations, equity REITs have proven to be quite resilient from an operational perspective, and it is clear that REITs are well-positioned for ongoing economic uncertainty in 2023.” The firm noted that data from the Nareit T-Tracker in the third quarter of 2022 highlighted solid year-over-year growth in funds from operations (FFO), net operating income (NOI), and same-store NOI. Quarterly FFO increased to $19.9 billion in the third quarter, a 14.9% increase from a year ago and an all-time high. While the pandemic took a toll on the operational performance of equity REITs, there’s no question that it has recovered and surpassed pre-pandemic levels. Nareit also noted how REITs historically perform during and after a recession. For example, REITs have historically outperformed private real estate during a recession and in the four quarters after a recession. REITs have also historically outperformed their equity market counterpart before, during, and after recessions.


Finsum:Based on Nareit's 2023 outlook, REITs are well-positioned to navigate market uncertainty and a potential recession due to strong operational performance.

Published in Eq: Real Estate

Inflation? Well, here’s some breaking news – even if CNN’s come to frown upon them lately: it’s still hitting nosebleed levels, according to gsam.com. What’s more, the wider economic environment, and the labor market, especially, has strutted its mettle.

Yeah; wow. Maybe – just maybe – the network will reconsider its spanking new policy.

In any event, it means the central banks will continue to rachet up rates. The question then becomes that since monetary policy impacts the economy with a lag, will they head north too far and quickly. From GSAM’s perspective, market stabilization will demand signs of inflation topping out, not to mention hawkishness and real yields.

”Higher inflation and higher growth volatility are propelling us into a higher yield environment, marking a departure from the post-financial crisis era,’ said Whitney Watson, global head of Fixed Income Portfolio Management, Construction & Risk at Goldman Sachs Asset Management. “Ultimately, we think this presents opportunities in high-quality fixed income assets, such as investment grade corporate bonds and agency MBS.”

Meantime, it seems bonds will be back in vogue with investors next year, according to schwab.com.

And it’s a real change of pace. Following subpar yields stretching years, and in the aftermath of the extremely hard knocks endured by prices in 2022, a bounce back appears to be in store in the fixed income markets.

Published in Bonds: Total Market
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