We’re kicking off the recurring market updates post. We’ll post market updates as conditions change; so even if it’s a few months old, the most recent update should reflect current market conditions (barring some statistical updates, of course). If you haven’t already, check out the big picture background on this segment under Wall Street Blogs. Keep in mind, we’re throwing most of this info out there right off the top of our heads. Don’t rely solely on memorizing this for an interview or other important situation. But, keep in mind that the more it sounds like your answer is off the top of your head, the more authentic/less scripted it seems.

US Economy

  • Economy and earnings humming along even as 1Q GDP growth revised downward
  • 2Q GDP growth came in at something over 2% – basically as expected
  • Earnings have bounced back this year after last year’s slowdown èGDP strength makes sense
  • Fed is maintaining lower rates and does not look to raise too quickly
    • Only one more rate hike is expected this year, currently @ 1.25%
    • Conducive to stable, but low, GDP growth

US Equities

  • Earnings drive equities over long run, more specifically earnings expectations (growth rates!)
  • Earnings recovered and look stable going forward so the stock market doesn’t have much reason to pull back.
    • Except, of course, for those who argue that the market has rallied too much that it has to pull back.
    • Not a moot point as this rally has been one of the longest in history
    • The market doesn’t HAVE to do anything though!!
      • Call it inertia or complacency à not too much of a reason for a bear case
        • Except scenario that Trump’s tax breaks and market supportive policies disappear (banks especially, normal/rising yield curve, etc.)
        • If/when this shows sign of confirmation (instead of rumor), the market could easily give back all gains since election, if not more
      • On other hand, confirmation of the actual Trump bump (tax legislation, federal spending/stimulus, etc.), would result in continuation of complacency and the steady stock market.
      • So far, the Trump bump is priced in so return of more animal spirits (inflation) and (unexpected) jump in earnings could be drivers of more stock market gains

US Bonds

  • Rates are low, and staying low as seen by Fed Policy
    • 10-year treasury is still under 2.5% – relatively speaking there are few places to go for yield
    • Corporate spreads are tight and high yield issues are not defaulting…yet
      • Once cash flows (aka earnings) start affecting companies’ abilities to pay high coupons of HY issues, it could cause a waterfall
      • But, as mentioned, earnings are pretty steady so not something of immediate worry

Europe Economy, Stock Market, Bonds (bunched together because there isn’t as much detail we can address. Definitely need more detail if you’re interviewing for a European product/desk or something)

  • Recovery from 2008 Crisis has not been as strong as US, but there has been widespread recovery across Europe, including UK, never mind Brexit
    • Recently, forward looking indicators (manufacturing indices, etc) have turned more positive and imply potential to gain steam – Gundlach said that on CNBC so don’t quote us on it.
    • Upside in Europe is greater as recovery lagged US and there is more room to run
    • Brexit seeming more and more like a non-issue
  • Rates are low and in many cases such as Germany, Spain, Italy, France, UK –, even lower than US (Germany 0.50% 10-year bund vs US 2.25%)
  • My opinion – migration from bonds to stocks under steady earnings backdrop will drive higher European stock prices
  • As long as rates across Europe are less than US, there will be too much money in bonds and too much fear in market to drive higher stocks

EM Economy, Stock Market, Bonds (see article for more: https://seekingalpha.com/article/4089484-emerging-market-stocks-weak-dollar-remains-tailwind)

  • Rates/inflation have recovered almost across the board – China, India, Brazil, etc.
    • Unlike US, their central banks have both raised and dropped benchmark rates as they try to find sweet spot between stimulation and inflation
  • GDP growth story is subdued but still an EM growth story with population driving earnings thought of as long-term story
    • Currencies are driver as this year’s dollar weakness has contributed to inflows to EM markets
    • Both EM stock and bond funds seeing strong in-flows – dollar FX story? To be seen, but markets have stabilized and still look attractive relative to developed markets and historical considerations