On the Minds of Investors

Can international stocks provide a hedge against rising inflation?

Inflation has been a hot topic amongst investors. Globally, inflation is expected to rise this year from 2020’s low levels. This reflation, a sign that the economy is operating above potential, should lead to strong earnings growth as well.

What is going on with the “average” stock?

For the majority of the bull market that followed the global financial crisis (GFC), and pretty much all of last year, a handful of stocks were responsible for the majority of the U.S. equity market’s gains. As these high-growth, mega-cap companies outperformed, more and more investors piled in, pushing the S&P 500 to an all-time high just months after hitting a pandemic-induced low. However, the outcome of the 2020 U.S. presidential election, coupled with positive news on vaccines late last year, has resulted in a significant shift in market dynamics.

Should investors be concerned about a “Taper Tantrum” hurting EM?

This year’s rise in long-term Treasury yields is bringing back memories of 2013’s “Taper Tantrum” and its negative effects on EM assets. This time around, should investors be as concerned about EM? The reason behind the move higher in bond yields will be important, with a rise in real yields more negative for EM. This has not been the case so far this year, but should it occur, EM countries are better positioned given fewer external vulnerabilities compared to 2013. With that said, investing in EM is about selectivity given differences in internal vulnerabilities between countries.

How will the Fed’s decision on the Supplementary Leverage Ratio (SLR) impact markets

For better or for worse, banks are required to meet various liquidity and leverage requirements. One ratio that measures a bank’s ability to absorb losses is the Supplementary Leverage Ratio (SLR). The SLR formula measures tier 1 capital, which consists mostly of common and preferred stock, as a percent of total leverage exposure.

How could vaccine hesitancy affect the global recovery?

Despite many other measures to help slow the spread of COVID-19, there is only one that can end the pandemic: broad global vaccination. The world has already met multiple milestones in the vaccine journey—developing several safe and effective vaccines, establishing production supply chains, creating protocols to vaccinate, and even ramping up supply and speed. One obstacle still remains: ensuring everyone actually takes it.

What has COVID-19 meant for working women?

It finally happened in February. After almost 12 months of relying on our parents for childcare so that my wife and I could continue to work during the pandemic, we were faced with a hard decision: either start looking for somebody to watch our daughter during the day, or one of us would have to quit. We sat down over a glass of wine to talk about it, and after a long conversation (along with a few awkward moments of silence), we decided that I would continue to work and my wife would leave her job.

What kind of equities should I own if inflation is rising?

During nearly every client conversation over the past few weeks, there has been some mention of inflation. One camp thinks that significant fiscal stimulus has pushed us to the cusp of a new inflation regime, whereas others believe that structural forces like technology adoption and income inequality will prevent inflation from becoming a problem in the long-run. It is impossible to know which of these views will prove to be correct, but good investors play the hand they are dealt. This begs the question of what types of equities tend to do best against a backdrop of accelerating inflation.

What should investors take away from China’s National People’s Congress?

On March 5^th, China began its most important annual political gatherings: the National People’s Congress and Chinese People’s Political Consultative Conference. These events highlight the central government’s priorities for the year ahead, with 2021 also a year with a new Five Year Plan (FYP). For the year ahead, the quality of growth will matter more than the quantity, with a focus on normalizing growth drivers and policy. Most importantly, the 14^th FYP sets China’s path forward, focused on: 1) technological innovation, 2) domestic demand, and 3) energy transition. While the cyclical priorities grab the headlines and may drive some short-term volatility, the medium-term priorities are what investors should align themselves with and can boost structural portfolio returns.

Should I brace myself for higher oil prices?

The March 4^th OPEC+ meeting passed with more fanfare than is typically associated with the organization’s biannual summit. As is normal, OPEC countries, led by Saudi Arabia, met with key non-member states to discuss output changes. Abnormally, though, the February deep freeze in Texas has temporarily damaged U.S. energy production, resulting in roughly 4 million barrels per day of lost production and a surge in oil prices to levels not seen in 12 months.

Money Moves: How should investors be positioned within the Fixed Income market, and where have dollars actually gone?

Given the modest back-up in yields over the last several months, many investors are wondering if, and how, the role of fixed income in a portfolio might change moving forward. Certainly, part of the answer lies in the macro-fundamental backdrop; but some will also lie in the flow of investor dollars. After all, the fundamentals matter little if there are no “buyers” of the story.