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We are watching for a possible shift, although it is not yet evident, in the correlation between stocks and bonds, which measures how similarly or differently these asset classes perform. For the past 10 years, this correlation has been consistently negative — when stocks have struggled, bonds have done well, and vice versa (a correlation
As 2013 begins, we find that important changes are occurring in the correlation structure of markets that should shape investment strategy. The first important shift is a decline in the elevated correlations across all kinds of equities, which has been a hallmark of recent years. We measured elevated correlations across sectors, across country markets, and
While the outlook for developed global economies is by no means rosy, investors have been so pessimistic and defensively positioned for so long that the absence of another crisis could be enough to coax cautious investors back into the markets. There is still an extraordinary amount of money on the sidelines or in safe-haven Treasuries,
As 2013 begins, we believe the most important question for investment strategy is whether the secular bear market for stocks has ended. Some evidence suggests it might have. Stock market returns in 2012 were very good, marking the fourth successive calendar year of gains in the United States. Three of the four years delivered double-digit
The fading risks of a major deleveraging event in Europe and a hard economic landing in China, along with partial progress on U.S. budget issues, may encourage investors to take a new look at opportunities in equities.
It appears that the effects of the major deleveraging event in 2008 — punctuated by the collapse of Lehman Brothers — has finally shifted into a second phase. For the past four years, fixed-income investors have been influenced primarily by fear of another Lehman-type event, and this has affected pricing in general. Now we believe
The United States must move forward and grow, and in doing so, not settle for the mediocrity of the so-called new normal. Our fiscal cliff dilemma has underscored the fact that we have a deficit of political leadership and a wealth of political partisanship. But all that means is that it is up to us
We continue to be cautiously optimistic on the U.S. economy, which has been gradually improving. Clearly, there are a number of long-term fiscal issues that the federal government needs to address, including entitlement spending and the debt load overall. Nevertheless, the United States continues to be among the most attractive developed bond markets for investors.
Lawmakers have one and only one job for the next several weeks, and it is avoiding the fiscal cliff, first, by identifying those issues that are the root causes of our fiscal distress and, second, by doing the hard work of consensus building to pass legislation that offers meaningful change. The political posturing on both