Global Asset Allocation: April Insights
As of March 31, 2019
On the back of the Fed’s dovish pivot, risk assets are off to a banner start with the MSCI All-Country World Index (on a local currency basis) and the S&P 500 indexes returning 12.4% and 13.6%, respectively, over the first three months of the year. This is their strongest quarterly return since September 2009 and the best first quarter since 1998. Commodities were also up strongly as oil had its best quarter in almost a decade. Does this foreshadow significant upside for the remainder of the year, or will markets trade sideways from here? Unusually strong starts have historically led to further strength, but with the bond market signaling that the end of the cycle may be near, markets may need another catalyst to carry the torch from here.
Back to Lower for Longer?
Government bond yields around the world continued to slide as dovish signals for both the Fed and the European Central Bank (ECB) sent the yield on the 10-year U.S. Treasury note to its lowest level since December 2017. While the U.S. Fed sees solid underlying economic fundamentals, they have indicated that they are willing to be patient in the face of low inflation and slowing growth and the bond market is pricing in an outright cut in 2019. At the same time, the ECB has further delayed its timeline policy normalization and announced additional stimulus, highlighting concerns about slowing global growth. Is the recent rally in rates simply an extension of the cycle or a harbinger of recession?
Coming in for a (Soft) Landing
China’s recent economic slump appears to be stabilizing as the effects of stimulus measures begin to filter through the economy. Chinese fixed asset investment and manufacturing Purchasing managers’ Index (PMI) beat expectations last month, thanks to infrastructure spending, with the PMI posting the biggest increase in seven years and the first significant monthly improvement since mid-2018. Additionally, despite ongoing posturing from negotiators from the U.S. and China, both sides seem keen to broker a deal to head off an escalation of a trade war that has been weighing on global sentiment. While clearly positive, will these green shoots be enough to stabilize global growth?
For a region-by-region overview, download the PDF.
Past performance is not a reliable indicator of future performance.
Sources: J.P. Morgan Chase & Co., Standard & Poor’s, Haver Analytics / People’s Bank of China, Caixin / IHS. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Source for MSCI data: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright © 2019, Bloomberg Index Services Ltd. Used with permission.
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.
Source for MSCI data: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
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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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