Midyear Market Outlook
Panel Summary
The panel was comprised of Doug J. Peebles, CIO, AB Fixed Income; Frank Rybinski, CFA, Senior Investment Strategist, AEGON; Michael Batnick, Director of Research, Ritholtz Wealth Management; Charles Stucke, CFA, CEO, Lepercq de Neuflize Asset Management; Ed Al-Hussainy, Senior Global Rates Strategist at Columbia Threadneedle (Ameriprise); and moderator David Allen, CFA, Institutional Director, Schroders.
The panelists—representing a range of market disciplines that included fixedincome,equity, macroeconomics and alternativestrategies as well as buy and sell side—delivereda broad and diverse view of various markets where overlap is not always readily apparent. The event uncovered links in financial instruments that often go overlooked and suggested the notion that financial managers and analysts are likely to benefit from the exploration and consideration of a diverse set of views, sourced from established market participants.
Throughout the panel, speakers examined current market expectations, explored modern thinking from influential asset managers and market strategists, challenged status quos and delved into the multitude concerns of market managers. Primary topics of focused centered aroundthe concept of free trade, trade growth and trade war with China. Question broached includedwhether markets are discounting mechanisms, why trade wars are not bullish, why the impact of a trade war is quite small, and how China is highly leveraged in both trade and debt. That “pure” free trade is the best solution for us is unclear, said one panelist, evident by the fact that the majority of our economic history was spent in an environment of unfree trade. Accordingly, the panelistnoted that trade theory would suggest tariffs could actually be a good thing in some ways, particularly on the basis that trade is a sliding scale.
The panel then offered opinions on what a“New Normal” marketis. On the idea of a “New Normal” market, general consensus assumes that,as long as we maintain pre-market margins, as well as returns on capital and flows of capital, we can hover around historical norms. The panelists generally agreed that there were more reasons to be bearish than bullish because we are not predicting any drastic percentage leaps in the stock market; but rather gradual, steady improvements instead.
Technology stocks were mentioned as a potential disruption to the overall value of stocks. Still, in the big picture, the panelists agreed that the technology revolution we see today will ultimately boost long term market cycles and overall productivity.
Additional discussioncovered national debt (in particular the $50 trillion that our country took out in an effort to settle previous debt), international markets (including rates and currencies), geopolitical risks (in which it was impliedthat European banks were effectively a parasite on global financial growth), and global growth as the basic theme for dealing with debt.
The panelists were asked for their thoughts on the idea that wearecurrently existing in a financial bubble, and their responsesvaried. One panelist suggestedthat we are in bubble territory in reference to returns, specifically. Another discussed indexes and fixed income, plus the illusion of liquidity. Yet another opinion posited that the bubble did not have to burst in order to exist.
The last topic covered explored how best to de-risk. Reponses ranged from the idea of reducing our exposure to certain currencies, the importance of understanding the value context and opportunities in volatility and treasuries. One panelist mentioned that a stronger dollar equates to lesser performance amongst other markets and supported their case by contrasting the Japanese Yen to the U.S. Dollar.
Following the formal panel discussion, a Q&A session ensued. The topics covered included retirement savings, access leverage, the yield curve and its tremendous amount of research value, Bitcoin and its implications, Brexit, real estate, the $200 billion in tariffs from China, and the political ability to distribute gainsfairly in order to ultimately reconcile gains.
