Tuesday, May 1, 2018

Investment Perspectives: Peaked growth, the Federal Reserve, and Key Factors

This Investment Perspectives zeroes in on where growth has peaked, the Fed raising interest rates, and four key factors that will guide market activity through the rest of 2018.

You can read the full Investment Perspectives here.

In this month's issue:

"Has Growth Peaked?"
Mark Luschini
Over the last few months we began to detect a softening in a variety of domestic economic indicators and, to a greater degree, those being produced abroad. In the U.S., however, the first quarter data has been anomalous for years, only to be followed by improved reports of growth in the very next period. Having said that, the Global Purchasing Managers Index, a reputable gauge for economic activity worldwide, did slip from its most recent peak in January and other measures of growth showed similar signs of moderating. None of this is unusual after such a lengthy expansion and, equally, none of this is portraying anything other than growth stabilizing at an above-trend pace.

"A Few "Whys" for our Fed Forecast"
Guy LeBas
It’s been a volatile year across financial markets, be it debt or equity. One thing that has remained relatively constant, however, has been the steady drumbeat of actual (and prospective) rate hikes from the Federal Reserve (Fed). In March, the U.S. central bank increased their target for overnight interest rates by 0.25% to a range of 1.50% – 1.75%. That is still low in a historical context, but represents the sixth increase since December 2015. More pertinent for our purposes is that the drums are set to continue for at least two and possibly even three more beats in 2018. We’ll evaluate why the Fed is raising rates, the outlook for Fed action throughout the rest of the year, and what that means for longer-term bonds.

"The Big Four"
Greg Drahuschak
Despite two potential technical breakdowns, the highest yield on the 10-year Treasury note in four years, fears of a trade war, and several weaker than anticipated economic reports, the S&P 500 exited April with a fractional gain. The volatility present throughout this year was clearly evident in April. The S&P 500 had a 6.2% low to high swing last month. The first trading session in April set the low with the S&P down 3.3%. Twelve trading sessions later, the S&P reached its monthly high, up 2.9%.