The only sure thing in today's global financial markets is change. There's always a new risk on the horizon — and a new opportunity for investors who know where to look. Putnam's portfolio managers and analysts offer their experienced perspectives each week on the events making news and moving markets. We hope you join the conversation, too. See our commenting guidelines for details.
Posted by Jason R. Vaillancourt, CFA, Co-Head of Global Asset Allocation, February 28, 2014
While rising bond yields are consistent with a strengthening economic recovery, they also prompt the concern among businesses and investors that higher interest expenses could become a drag on continued expansion.
Rising rates signal stronger economy
We take a relatively positive view of the possibility of rising rates, which are also a symptom of better prospects for economic growth. Indeed, longer-term real interest rates — as measured by the difference between bond yields and inflation — have been moving higher for almost two years. In recent months, long-term real rates even moved from negative levels to positive territory, yet economic growth and employment gains have remained steady.
The Fed’s comments play a key role
While a slow pace of rate increases would not alarm us, we nevertheless see real risks ahead for the Fed as it grapples with communication challenges. The Fed is employing forward guidance in an attempt to smoothly exit its extraordinary policy initiatives, which include a mix of bond purchases and holding short-term rates near 0%.
Fed forecasts and balance sheet have impact
Investors may come to doubt the Fed’s forward guidance given the central bank’s spotty record in economic forecasting. These doubts could contribute to rate volatility across the yield curve. The Fed also owns over $4 trillion in fixed-income securities, and how its policy goals influence its actions with this portfolio has major consequences for the market. Investors should be prepared to navigate more interest-rate volatility as the Fed seeks to chart a difficult course ahead.
A lackluster U.S. economic recovery and declining consumer sentiment often get blamed for weak sales at restaurants. However, another important factor has emerged: Fewer women are working outside the home. Weaker consumer spending U.S. consumers continue to curb spending in … Continue reading »
Posted by Putnam U.S. Equities Team, February 18, 2014
After moving sideways for the past two years, U.S. corporate earnings may be poised for reacceleration in 2014. While the growth is likely to be modest, we believe investors may be overlooking the potential for improvement. There appears to be … Continue reading »
Posted by Putnam Fixed Income Team, February 12, 2014
Unemployment continues to drop, but not because a lot of new jobs are being created, as many would hope. Instead, the unemployment rate is dropping primarily due to a declining labor participation rate. This remains a cause for concern for … Continue reading »
Posted by Jason R. Vaillancourt, CFA, ®, Co-Head of Global Asset Allocation, February 4, 2014
Emerging markets are vulnerable to the marginal tightening of U.S. monetary policy, we believe, caused by the reduction in bond purchases by the Fed. In December, the Fed announced it would reduce its $85-billion-per-month bond-purchase program by $10 billion beginning … Continue reading »
Posted by Sarah A. Marshall, Analyst, December 20, 2013
It can be challenging for a retail manufacturer to break into foreign markets, particularly when draconian import duties lead to price inflation and frustrate the growth of the retailer’s brand. Penetrating new geographies can be especially challenging for the luxury … Continue reading »
Posted by Joykrishna Mahato, Analyst, December 13, 2013
Tourists from China spent more money abroad in 2012 than tourists from any other country. At US$102 billion, Chinese international tourism eclipsed — by 20% — the total amount spent by either German or U.S. tourists. Only seven years earlier, … Continue reading »
Posted by Putnam Fixed Income Team, December 5, 2013
In recent posts, we have approached the problem of the outlook for interest rates by outlining the questions that surround the potential growth rate of the U.S. economy. It is established that this rate is heavily influenced by conditions in … Continue reading »
Posted by D. William Kohli, Co-Head of Fixed Income, November 22, 2013
A look at recent trends in the U.S. economy suggests that the potential U.S. growth rate is declining. The first reason for this conclusion is that investment has been so weak recently, which means the country’s capital stock has been … Continue reading »
A deeper dive
Capital Markets Outlook (PDF) 1Q 2014
Stocks can benefit from an improving global economy, but interest-rate-sensitive bonds remain vulnerable.
Fixed-Income Outlook (PDF) 1Q 2014
Declining labor participation and a stronger economy may make interest rates volatile, but credit risk remains attractive.
Equity Outlook (PDF) 1Q 2014
The outlook for U.S. stocks is tempered, while recovery and restructuring may lift international markets.
About the authors
Putnam’s veteran team of portfolio managers and analysts has invested over multiple economic cycles and in markets worldwide. They bring a global perspective and a wealth of expertise to the insights they offer on today’s market trends.