Global Asset Allocation: June Insights
As of May 31, 2019
Fed Put Affirmed, For Now
Equity markets experienced one of the largest Fed relief rallies in history as global central banks policies have pivoted to a more dovish stance in the face of low inflation and moderating growth. However, equity markets reversed course in May as it became evident that a trade deal was not imminent and quickly priced in nearly three rate cuts by the end of 2020. While the Fed has historically cut rates after a sustained pause, such an aggressive retrenchment in policy seems unlikely outside of an outright recession. Recent reassuring comments by Chairman Jerome Powell reinforced the markets’ expectation that the Fed put is alive and well. While tough to handicap the outcome of trade, markets think the Fed will provide a backstop if things worsen.
Technology In The Crosshairs
Technology companies have found themselves in the crosshairs of the U.S.-China trade dispute. Not only are provisions on intellectual property, forced technology transfer, and critical technologies at the center of the dispute, the escalation in tensions has had an immediate impact on business sentiment and technology supply chains. With a shaky global growth outlook and waning business confidence, actual capital expenditures could disappoint, particularly in cloud computing, which had been a bright spot in 2018. Additionally, non-tariff barriers, such as blacklisting Huawei, and questions surrounding the supply of rare earth metals represent yet another risk to investors in the technology space. The question remains: Is this simply a temporary setback for business models fueled by secular change, or are the long-term industry dynamics truly in question?
EU Rebuke Of The Establishment
The European parliamentary elections confirmed that the populist surge continues with established parties suffering substantial losses, often at the hands of euroskeptics. The backlash has been increasing as social policies have failed to keep up with the inequalities caused by the liberalization of trade and outsourced manufacturing. Election results in Italy will likely strengthen the ruling anti-EU Lega party’s push for fiscal loosening—whereas results in France show a lack of popular support for President Emmanuel Macron’s reformist economic agenda. Results in the UK were particularly concerning, as the newly formed Brexit party won the most votes with the governing Conservative party coming in a distant fourth. Unfortunately, investors seeking a safe haven from the political uncertainty prevalent in the U.S. and China are unlikely to find it in Europe.
For a region-by-region overview, download the PDF.
Certain numbers in this report may not equal stated totals due to rounding.
Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
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Key Risks—The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk—in general, equities involve higher risks than bonds or money market instruments.
Credit risk—a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk—changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk—the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk—emerging markets are less established than developed markets and therefore involve higher risks.
Foreign investing risk—investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk—when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk—real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small and mid-cap risk—stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk—different investment styles typically go in and out of favor depending on market conditions and investor sentiment.
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