Clearview Portfolio Consulting July Market Update

Key Points:

  • Stocks had their best month of the year despite the Fed aggressively raising rates to tackle inflation.
  • The US entered a technical recession after GDP declined for the second consecutive quarter in Q2.
  • Bonds also had their best month of 2022 with long-term rates declining as investors hedged a potential slowdown in the US economy.

Sometimes good economic news is bad and bad economic news is good for financial markets.  US stocks rallied in July with the S&P500 gaining 9.22% despite the Federal Reserve raising interest rates to combat inflation.  With inflation reaching a 40-year high of 9.1%, the Fed raised the Fed Funds Rate 75 basis points for the second straight meeting, bringing its range to 2.25%-2.5%.  The US economy entered a technical recession a few days later, defined as two consecutive quarters of negative GDP growth.    Second quarter GDP contracted by 0.9%, after a first quarter drop of 1.6%.  Conventional wisdom might suggest that stocks should go down on bad economic news.  However, it is important to remember that stocks are forward-looking.  April and June saw big market drawdowns of over 8% per month where investors seemed to have priced in these outcomes. While the US economy is most certainly slowing and has challenges ahead, the Fed has confidence that it can handle higher rates.  The labor market continues to be strong adding 372,000 jobs in June, keeping the unemployment rate at 3.6%.  Average hourly earnings have also been robust as there are more job openings than job seekers. Higher rates will likely cause that gap to narrow in quarters to come.

All sectors of the US stock market were positive for the month.  The best performing sectors were those that had been hit hard for the first half of the year: consumer discretionary (+18.94%) and technology (13.54%).  Energy (+9.72%) came back into favor as a heat wave in the US sent natural gas prices swiftly higher.  Small cap stocks rallied over 10% in July, while international returns were more muted.  Concerns over energy supplies in Europe heading into the winter are causing economists to adjust growth estimates lower.  The MSCI EAFE Index gained 4.98% for the month while emerging market equities were flat.  The strong US dollar continues to weigh on international returns for US investors.

Fixed income markets saw the best month of the year for the Bloomberg US Aggregate Bond Index, moving 2.44% higher in July.  Intermediate and long-term Treasury yields dipped as investors hedged for a recession, following the Fed’s hawkish policy of higher rates and balance sheet reduction.  While inflation may be close to peaking as gasoline and other commodity prices have fallen, the Fed is a long way from its 2% target. Additional rate hikes seem probable and may continue to slow economic activity.  Looking ahead to the rest of the year, earnings uncertainty from higher borrowing costs and the slowing US economy may continue to cause volatility in stocks and risk assets.  However, staying invested through tougher economic periods paid off for long-term investors in July.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Allied Financial Advisors, LLC and Cambridge are not affiliated.  This communication is strictly intended for individuals residing in the states of AZ, CA, CO, CT, DE, FL, GA, IA, IL, IN, KS, MA, MD, MI, MO, MT, NC, NH, NJ, NY, PA, SC, VA, WA and WI. No offers may be made or accepted from any resident outside the specific states referenced.

Clearview Portfolio Consulting Market Update – Regarding Recent Volatility

Last Friday we saw inflation jump 8.6% (shelter, gasoline and food being biggest contributors). This was an increase from the prior month and the largest increase since December of 1981. Investors are now questioning if 50 basis point increases from the Federal Reserve is enough to rein in inflation. The Feds meeting this week led to a .75% interest rate increase.  As a result, yields have increased on the likelihood that rate hikes may be more aggressive in the coming months. There is also the possibility that the Fed may decide to raise rates in-between regularly scheduled meetings. Higher yields to control inflation will likely slow the economy down as borrowing costs for mortgages, cars, credit cards etc. move higher. This uncertainty in the bond market is flowing into the equity market as stocks fell hard on Friday and look to have another selloff today.  The S&P500 is down greater than 20% year to date so we are officially into bear market territory. The silver lining here is that the selloff in stocks has caused valuations to no longer look stretched.  The S&P500 is trading very close to its 25 year average price-to-earnings ratio of 16.8x (according to JPMorgan).  While a further drop in equities is possible, stretched valuations in stocks is no longer a concern.  Investors should expect a volatile summer in the markets as gas prices continue to creep higher and eat into discretionary consumer spending.  Consumer discretionary stocks have been the worst sector of the stock market this year, losing almost 30%.  Long-term investors should expect to experience this type of volatility as part of a healthy stock market cycle.  With the Fed focused on inflation, the bond market will also continue to be volatile for the months ahead until inflation begins to wane.  It is important on these days to remember that panic is not an investment strategy and we have experienced these types of economic uncertainties in the past.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Allied Financial Advisors, LLC and Cambridge are not affiliated.  This communication is strictly intended for individuals residing in the states of AZ, CA, CO, CT, DE, FL, GA, IA, IL, IN, KS, MA, MD, MI, MO, MT, NC, NH, NJ, NY, PA, SC, VA, WA and WI. No offers may be made or accepted from any resident outside the specific states referenced.

Clearview Portfolio Consulting May 2022 Market Recap

Key Points:

  • Stocks were slightly positive in May, but volatility continues to remain high.
  • Energy stocks continue to be the leading equity sector as energy prices remain elevated
  • The US Bond market experienced its first positive month of the year as yields fell

Stocks remained volatile in May as investors continue to question if the Federal Reserve can control high inflation without causing a recession.  Over the coming months, the market will be anxiously watching US and global economic data.  If economic data is too strong it could be inflationary; if it is too weak it could be viewed as recessionary.  This uncertainty has brough volatility to equity markets.  The S&P500 eked out a 0.18% monthly gain while half of its daily returns were greater or less than 1%.   Investors continue to eye high energy prices and their effects on consumer spending.  This has caused some companies to lower expectations for future earnings, specifically in consumer stocks. 

Six of the eleven major equity sectors were positive for the month with energy stocks continuing their market dominance.  The rebound in energy prices in May resulted in energy stocks gaining 15.8% for the month and 58% for the year.  Utilities (+4.3%) and financials (+2.73%) were the next biggest gainers.  Real estate (-5%), consumer discretionary (-4.9%) and consumer staples (-4.61%) were the worst performers of the S&P500.  Small caps were flat for the month after a challenging April while the tech-heavy NASDAQ lost another 1.93%.  The NASDAQ Composite is down 22.5% for the year after strong double-digit gains over the past 3 years.  International stocks gained modestly with the MSCI All Country World ex-US Index up 0.72% in May, but still down 10.72% for the year.  Stocks in Europe and Asia are still being influenced by the Russian invasion in Ukraine as well as shutdowns in China.

Bonds saw their first positive month of 2022 with the Bloomberg US Aggregate Bond Index gaining 0.64%.  Longer duration municipal, Treasury and mortgage bonds performed the best as yields fell.  Fed Chairman Jerome Powell expects 50 basis point increases in the Federal Funds Rate at the June and July Federal Reserve meetings in an effort to slow down inflation. The bond market has largely priced in these moves already.  After July, it is expected that the Fed will take a “wait and see” approach to monetary policy. Higher interest rates usually lead to slower economic growth which has caused credit spreads to start to widen. As a result, high yield bonds lagged the overall bond market in May.

While there are fears of a recession in the US in the coming quarters, a look to the job market paints a different picture.  The unemployment rate stands at 3.6% and there are a record number of job openings. Consumer and business spending continues to be strong in the US but may moderate with higher interest rates.  Should we experience a technical recession (two consecutive quarters of negative GDP growth), it will likely be mild.

Sources: Morningstar Direct, JPMorgan, First Trust, Wall Street Journal

Clearview Portfolio Consulting April 2022 Market Recap

Key Points:

  • Stocks suffered their worst month in two years as the S&P500 dropped 8.72% in April
  • The technology heavy NASDAQ Composite Index has fallen 21% this year with big tech companies that drove the market higher in recent years faring worst
  • Higher expected interest rates caused a bond market selloff as the Federal Reserve attempts to combat high inflation in the US

Stocks suffered their worst month since the COVID shutdowns of May of 2020, as the S&P500 dropped 8.72% in April.  Markets digested a negative GDP reading in Q1, along with high inflation, lockdowns in China, high energy prices impacting consumers and the ongoing Russia-Ukraine conflict that does not seem to have a clear resolution.  U.S. Gross Domestic Product (a measure of how the economy is growing) contracted in the first quarter at a 1.4% annualized rate.  This caused investors concern that the US economy may be headed for a recession.  However, looking back to 2021, US GDP advanced a staggering 6.9% (annualized) in Q4.  GDP should stabilize in the coming quarters but the odds of a recession (2 consecutive quarters of negative GDP growth) for 2022 remain low but are probably higher than the start of the year.

Most sectors of the market were lower with communication services (-15.62%), consumer discretionary (-13.00%) and technology stocks (-11.28%) leading the market down.  Consumer staples (+2.56%) was the only positive sector as the demand for paper towels, toothpaste and food products tend to remain stable regardless of problems abroad.  The NADAQ Composite is down 21% for the year as shares of big technology companies that drove the market higher over the past few years experienced double-digit losses.  Value stocks continue to outperform growth stocks for the year, while small cap stocks are lagging larger companies. That is typical in a risk-off environment.  International stocks held up better during April in both emerging and developed markets despite a strengthening U.S. dollar. 

All eyes will be on the Federal Reserve in the coming months as bond investors expect a 50-75 basis point increase in May in an effort to slow rising inflation.  This will be the largest hike since May of 2000. In addition to an increase in the Federal Funds Rate, it is expected that the Fed will allow their balance sheet to runoff about $95B per month.  When the economy closed due to COVID, the Fed aggressively bought bonds (Treasuries and mortgages) to provide liquidity in the markets and to ease financial conditions (lower interest rates) for consumers and businesses.  As interest and principal on these bonds comes due, they will no longer be reinvesting them in the market but slowly pulling liquidity out of the system.  The market has anticipated these moves which is why yields have moved markedly higher before the Fed even started.  The move in yields has caused the Bloomberg Aggregate Bond Index to drop 9.5% for the year, as higher current yields hurt existing bonds.  If inflation readings start to come down, volatility in yields will likely follow suit.  Higher quality corporate bonds underperformed high yield bonds suggesting the economy is still strong.  Defaults remain below historical averages and income is coming back to the fixed income component of balanced portfolios.

Sources: Morningstar Direct, Bloomberg, Wall Street Journal, JPMorgan

Clearview Portfolio Consulting March 2022 Market Recap

  • High inflation readings in the U.S. are causing high volatility in the markets as well as higher yields in fixed income.
  • The Federal Reserve began raising interest rates in March in what is expected to be a series of rate increases to slow down inflation.
  • Stocks rebounded during the month, with most sectors of the market higher.

The Russian invasion of Ukraine has caused a surge in global energy and commodity prices, sparking price shocks and threatening to derail the global economic recovery.  Consumer inflation, which had been rising well before the crisis in Ukraine, has investors worried about the path of monetary policy this year as the Federal Reserve has committed to tighter conditions.  The Consumer Price Index (CPI) has risen almost 8% over the past year, its highest level since 1982.  These economic uncertainties and higher interest rates have caused volatility in markets for the first quarter of this year.  After a challenging January and February, stocks bounced back in March with the S&P500 gaining 3.71%.  Utilities (+10.36%), energy (+8.96%) and real estate (+7.79%) led the market higher for the month, while financials (-0.19%) was the only negative equity sector.  Small cap stocks lagged their bigger counterparts while growth outperformed value in large cap stocks.

While high inflation, higher interest rates and the Ukrainian crisis are headwinds to risk-taking across the globe, Covid cases have been plunging and starting to become an afterthought.  Many aspects of the US economy are getting back to pre-pandemic levels with supply chain issues beginning to ease.  The labor market remains tight as 431,000 jobs were added in March, bringing the unemployment rate down to 3.62%.  Higher inflation costs for workers should lead to higher wages in a tight labor market, further feeding inflation inputs.

The Federal Reserve raised the Federal Funds rate in March in their effort to slow down inflation.  Many economists expect them to hike at each subsequent meeting by 25 additional basis points, although 50 basis points is not off the table.  This is not an easy task as raising rates too quickly may choke off credit growth as higher rates mean higher financing costs which will slow down the economy.  The Barclays Aggregate Bond Index, which includes Treasury, mortgage, and corporate bonds saw its fourth consecutive monthly decline in March.  Higher market yields caused the index to drop 2.78% for the month and was down 5.93% in the first quarter.  In addition, the yield curve inverted during the month, as 2-year Treasury yields exceeded 10-year yields.  Traditionally longer duration assets have higher yields as they are more susceptible to changes in prevailing interest rates.  A higher yield in shorter term securities of equal credit risk indicates that the market expects (or is obtaining protection from) lower rates in the future.  Rates usually come down after the economy slows and the Fed begins the cycle over again.  Investors should expect volatility in both equity and fixed income markets to continue until we have more clarity on inflation and the situation in Ukraine. 

Sources: Morningstar Direct, Guggenheim, Wall Street Journal

Clearview Portfolio Consulting February 2022 Market Recap

Key Points:

  • “A hawkish tilt in major central-bank rhetoric, mixed global macroeconomic data underscored by persistent inflation, and geopolitical uncertainty surrounding the Russia-NATO conflict marked a volatile start of the year.”Wellington Management.
  • Energy stocks were the only positive sector of the S&P500, gaining over 7% as oil spiked to $100/bbl.
  • The situation in Ukraine will impact markets for the foreseeable future, but the US economy (aside from high inflation readings) appears to be in relatively good shape.

Risk assets took a hit in February in the wake of the Russian invasion of Ukraine.  As tensions continue to escalate, the economic impact of higher energy prices weighed on equity markets in February.  The S&P500 dropped 2.99% for the month, bringing its year-to-date loss to -8.01%.  Small cap stocks, whose revenues tend to be more domestically oriented, were positive in February with the Russell 2000 up 1.07%.  Value stocks continued to outpace growth stocks with energy being the only major sector to post a positive return (+7.13%).  The communications services sector saw the largest loss in the S&P500, down 6.98% with shares of Meta (Facebook) losing nearly a third of its value.  Energy stocks have gained 27.59% year to date, with oil and natural gas prices at multi-year highs.  The conflict in Ukraine has sent European natural gas prices up over 60% and global crude oil above $100.  Higher energy prices are weighing on the outlook for the global economic recovery pushing inflation expectations higher.  Higher energy prices, when inflation is already running hot, have investors worried about stagflation: a period where of higher-than-average inflation with little to no economic growth. 

The Federal Reserve is expected to raise the Federal Funds rate at their next meeting in an effort to slow inflation.  The market expects anywhere between four and seven 25 basis point rate hikes this year.  The Fed finds itself in a difficult situation where they need to raise rates to slow inflation but not too quickly so as to choke off economic growth.  Bond yields were also rather volatile during February, as inflation fears pushed the 10-year Treasury yield above 2%, but then fell swiftly after the Russian invasion began.  Higher demand for safe haven Treasury bonds pushed yields back down but the Bloomberg Aggregate Bond Index still lost 1.12% on higher rates for the month.

Cutting off Russian exports to the world to curtail further invasions will most certainly be inflationary.  Russia is a major energy exporter to Europe, as well as a global commodities supplier: fertilizer, wheat, aluminum, palladium etc. The uncertainty of how this plays out will weigh on market sentiment for the duration of the Russian occupation of Ukraine (which could be weeks or months).  Fortunately, the US economy came into this situation in relatively good shape: US GDP in the fourth quarter of 2021 was 7%, the unemployment rate fell to 4% and the impact of COVID wanes by the day. Markets will continue to be choppy for short-term traders.  Long-term investors should continue to remain diversified.

Sources: Morningstar Direct, JPMorgan, Wellington, Wall Street Journal.
Indices mentioned are unmanaged and cannot be invested into directly.

Clearview Portfolio Consulting January 2022 Market Recap

Key Points:

  • Stocks sold off to start 2022 as the major US averages dropped between 3 and 9%, with riskier stocks detracting most.
  • Higher inflation has the Federal Reserve prepared to complete their asset purchases and raise interest rates in the coming quarters.
  • The global economy is expected to continue to grow in 2022, but at slower rates from last year.

After a strong and rather calm year in equities during 2021, stocks pulled back aggressively to start 2022.  Elevated valuations, high inflation and geopolitical tensions forced investors to reprice risk in the markets.  The technology heavy NASDAQ Composite Index lost 8.96% in January, with high growth/no earnings companies seeing the biggest losses.  The higher quality market indexes fared better, with the S&P500 dropping 5.17% and the Dow Jones Industrial Average losing just 3.24%.  Energy stocks (+19.10) and financials (+0.06%) were the only positive sectors of the S&P500 while consumer discretionary         (-9.68%) and real estate (-8.5%) saw the biggest selloff.  Value stocks held up relatively well with the Russell 1000 Value down 2.33% vs. an 8.58% loss for the Russell 1000 Growth.  Small cap stocks dropped 9.63% to star the year, with value outperforming growth.

Globally diversified investors benefitted from international markets holding up relatively well.  Developed international markets as measured by the MSCI EAFE index dropped 4.83% while emerging markets lost just 1.89% (MSCI EM Index).  Latin American equities were down over 8% in 2021 but were the lone bright spot in January gaining over 7%.  Stock valuations outside the US remain relatively lower and thus could be less vulnerable to further selloffs this year.

Uncertainty over the pace of interest rate hikes from the Federal Reserve rattled the bond market in January.  The yield on the 10-year Treasury note climbed from 1.51% at the end of 2021 to 1.78%, reflecting investors’ concerns over inflation and future interest rate increases.  The Bloomberg US Aggregate Bond index fell 2.15%, while riskier high yield bonds fell further.  Asset backed securities         (-0.56%) and mortgage backed bonds (-1.48%) held up the best in US markets.  Despite the losses in the bond market, yields are moving higher and becoming more attractive to fixed income investors.

While January was a difficult month to remain invested, it is important to remember that on average markets correct 10-15% every 12-18 months.  We had not experienced a correction since the first quarter of 2020, so markets were probably overdue.  Corporate balance sheets remain strong, the US consumer is in good shape, but investors must recognize that 2022 will likely continue to be a bumpy ride.  Higher interest rates mean that the US economy is growing and is healthy.  The Federal Reserve needs to remove accommodative measures to keep inflation in check and have flexibility for the next time it needs to provide liquidity. While the economy will begin to slow this year compared to last, the probably of a recession in 2022 remains low.

Sources: Morningstar Direct, Wall Street Journal, First Trust

Clearview Portfolio Consulting 2021 Recap

Key Points:

  • 2021 was a strong year for risk assets as the S&P500 gained almost 29%.
  • Higher than expected inflation has pushed to Fed to taper its asset purchases and will likely cause interest rate hikes in 2022.
  • International stocks continue to lag the US markets, but long-term investors have benefited over time from global diversification.

2021 marked a solid year for risk assets as the global economy recovered from the shutdowns of 2020. Despite new coronavirus strains during the summer and fall, US stocks pushed to new all-time highs during the year. The S&P500 closed 2021 up 28.71%, it’s third largest calendar year gain since the turn of the century. Low interest rates coupled with strong economic growth fueled not only equity prices higher, but prices for goods and services for consumers.  Inflation, which had been rather subdued over the past decade, came in at readings not seen since the early 1990s. The Federal Reserve has responded by beginning to taper their asset purchases of Treasuries and mortgage-backed securities, which were meant to provide liquidity during the crisis.  In addition, the Fed will likely begin raising interest rates in 2022 to keep inflation under control. Against this backdrop, many economists and market participants expect economic growth to moderate in 2022, which may cause equities to have a more muted year.

International stocks lagged the U.S. for the fourth consecutive year.  In efforts to combat coronavirus outbreaks, lockdowns in Europe and Asia slowed economic activity during the year.  The MSCI EAFE Index, which is a measure of international developed countries, managed to gain 11.26% in 2021.  Emerging market stocks dropped 2.54% with losses in Chinese, Latin American and Korean equities.  Economic disruptions across the globe caused supply chain bottlenecks, further exacerbating global inflation.  While international investments have struggled against their US counterparts over the past few years, their attractive valuations and long-term diversification benefits should not be ignored.

Bonds were a challenging asset class as Treasury yields climbed during the year.  The Bloomberg US Aggregate Bond index lost 1.54% in 2021, its second worst annual return since 2000.  Inflation protected securities (+5.96%) and high yield (+5.00%) were the best performing sectors following strong economic growth and higher inflation, while intermediate Treasuries lost 2.87%.  If the US economy continues to grow and inflation remains elevated in 2022, yields will likely climb.  While that may not create positive returns for bonds this coming year (bond prices fall when yields rise), it is important to remember the role of bonds in a diversified portfolio.  Looking back to 1990, the Bloomberg US Aggregate Bond Index was positive in every calendar year that the S&P500 was negative. It is also important to remember that as interest rates climb, so do yields.  Bonds maturing may be re-invested at higher yields so there will likely be some short-term pain to achieve a longer-term gain (higher yields).

Sources: Morningstar Direct, Wall Street Journal, Nuveen, Capital Group

Clearview Portfolio Consulting November 2021 Market Recap

Key Points:

  • Markets became very volatile to close out November on news of a new coronavirus variant
  • Stocks across the globe dropped as inflation, Fed tapering and potential lockdowns weighed on investor sentiment
  • Risk assets will likely remain volatile for the rest of 2021 and into the new year.

The new Omicron variant of the coronavirus has caused a lot of anxiety among investors as we head into the home stretch of 2021. This new variant’s transmissibility and mortality rates are still unknown, but that hasn’t stopped nations across the globe from enacting travel restrictions and limiting activities. Fear that new lockdowns could cause the global economic recovery to stall turned investors away from risk assets in November and early parts of December. The S&P500 dipped 0.69% in November with financials (-5.68%), communications stocks (-5.16%) and energy (-5.09%) performing worst. Technology was the only bright side of the market gaining 4.35% as investors migrated towards semiconductor chip, software, and hardware stocks. Small caps were hit rather hard with the Russell 2000 losing 4.17%. In addition to the virus uncertainty, inflation has remained stubbornly high, causing the newly re-elected Fed Chairman Jerome Powell to suggest the tapering of asset purchases by the central bank could be accelerated.

International stocks sold off in November as a flight to safety in Treasuries caused the US dollar to rise. Despite much lower relative valuations compared to the US stock market, international stocks looked poised to trail the US market for 2021. Stocks outside of the US have struggled this year with the slowdown in the Chinese economy having rippling effects across Asia and Europe.

High quality bonds held up well during the month with TIPS (+0.89%), municipals (+0.85%) and intermediate Treasuries (+0.77%) providing a ballast for balanced investors. The riskier sectors of the bond market fell along with the stock market as high yield bonds lost 0.95%. Treasury yields fell dramatically in the last week of November as demand for high quality assets drove prices up (bond prices and yields move in opposite directions).

As we move into the new year, markets will likely remain volatile as inflation, omicron, interest rates and rich valuations remain headwinds to risk assets. Markets can be choppy over the near term as investors separate the news from the noise. However, over the long-term, stocks tend to follow their earnings and free cash flow but riding out the bumpy times is never an easy task.

Sources: Morningstar Direct, Wall Street Journal, T.Rowe Price, Morgan Stanley

Clearview Portfolio Consulting October 2021 Market Recap

Key Points:

  • Equity markets rebounded sharply to all-time highs in October after a selloff in September
  • The Federal Reserve will likely be tapering their asset purchases in November or December.
  • International stocks have lagged the US all year but could draw more demand based on cheaper valuations and higher dividend yields. 

Stock rebounded sharply in October after a steep decline in September. The S&P500 had its strongest month of the year, gaining 7.01%.  For the year, the index is up 24.04%. All the domestic sectors were in positive territory with consumer discretionary (+10.94%) and energy (+10.36%) leading the way.  Growth stocks outperformed value and small caps underperformed large caps. Strong earnings growth continues to propel stocks to all-time highs. According to BlackRock 80% of companies in the S&P500 which have reported third quarter earnings through the end of October have beaten expectations. While optimism in the stock market remains strong, supply chain disruptions remain a challenge with rising prices.

All eyes will be on the Federal Reserve meeting this week with expectations of bond purchase tapering to be announced. Short term interest rates will likely remain unchanged but less demand for longer dated bonds could push long-term yields higher. Fed Chairman Jerome Powell’s position is in question at a critical time as the Fed unwinds its massive fiscal stimulus in the face of higher inflation. Interest rates seem to be range bound with the 10-year Treasury yield ending October at 1.56%. It seems like higher yields are a foregone conclusion but yields across the globe remain low. Government bonds in Japan pay just a few basis points while Germany still has negative yields. The UK may be the first central bank to raise interest rates to combat rising inflation according to the Wall Street Journal.

International stocks continue to lag the US with the MSCI EAFE gaining 2.46% in October and 11.01% for the year. Cheaper stock valuations abroad may begin to draw more interest. JPMorgan’s Guide to the Markets shows that international stocks (MSCI ACWI) trade at just 14.5x forward earnings vs. 21.2x for the S&P500. Higher relative dividend yields outside the US could also attract more investment as investors deal with potentially higher bond yields and corresponding lower prices.

Sources: Morningstar Direct, Wall Street Journal, BlackRock