Northern Trust Asset Management’s Capital Market Forecast
Every year, Northern Trust Asset Management issues a multi-asset class, five-year investment outlook known as its Capital Market Assumptions Report. Per the recently released 2023 edition, Northern Trust is expecting market returns to be slightly below long-term historical averages. While they believe lower stock valuations may provide some support, upside will be limited by higher interest rates. They see a somewhat similar dynamic playing out with bonds, where returns will be supported by higher yields that will be capped by flatter global yield curves. Among the six investment themes they’ve identified as driving markets over the next five years are Slow Growth Transitions, which looks at such slow transitions across the globe as pandemic to endemic; globalization to regionalization; and fossil fuels to renewables. Here today to discuss CMA’s themes and forecasts is Chris Shipley.
The Big Short Squeeze Is Coming
The latest rate hike announcement by the Fed sent stocks tumbling to the year’s lows. While last week’s market action was brutal, the good news is the markets are set up for a rather significant short squeeze higher.
The Importance of Quality Following Interest Rate Hikes
Generally speaking, when rates rise, so does the importance of investing in high-quality companies with strong operating metrics that can weather the higher cost of capital.
SPONSORED Fed’s Inflation Fight Likely to Persist
The cost of goods may be peaking, but the rising cost of services clouds the inflation outlook. In our view, the Fed’s fight with inflation is far from over and will likely continue to be a headwind for the economy and equity markets. Therefore, our outlook remains cautious, and our Asset Allocation Committee is underweight stocks relative to bonds.
Moving Averages: S&P Down 9.3% in September
Valid until the market close on October 31, 2022.
The S&P 500 closed September with a monthly loss of 9.34% after a loss of 4.24% in August. At this point, after close on the last day of the month, all five S&P 500 strategies are signaling "cash" — Vanguard REIT Index ETF (VNQ), iShares Barclays 7-10 Year Treasury (IEF) and Vanguard All-World Index ex-US ETF (VEU), and Vanguard Total Stock Market ETF (VTI), Invesco DB Commodity Index Tracking (DBC) — up from last month's quadruple "cash" signal.
Now Comes the Hard Part
Surveying the current condition of the financial markets, we presently observe a combination of still historically-extreme valuations, rising yet still only normalizing interest rates, measurably inadequate risk-premiums in both equities and bonds, and ragged, unfavorable market internals, suggesting continued risk-aversion among investors.
It’s Infrastructure’s Time to Shine. Here’s What Investors Should Know About the Asset Class.
As the U.S. CPI data continues to rise, Charles Hamieh, Portfolio Manager at ClearBridge Investments, dives into the opportunity present for investors looking at the infrastructure space as an inflation hedge moving forward.
Risk Parity Funds Have Failed to Work as Advertised
In times like these, when nothing seems to work in financial markets, risk parity strategies should act as a sort of shock absorber. It’s a simple concept, really. Unless you have reason to believe one investment is better than another, you should take equal risk in each.