Mixed Bag

  • Volatility in early October is more likely the result of high valuations and tightening financial conditions, not necessarily a flattening yield curve
  • Trade tensions with China are compounding valuation anxiety and we don’t see an immediate end in sight to these tensions
  • Given the relative health of the US economy and continued strong earnings releases, we view the current volatility as an isolated pocket, not the beginning of a more severe bear market


The calm of Q3 was interrupted by severe volatility starting in the first few days of October and continuing through to this writing.  Last quarter, we ...

Turkish Contagion

The spat between the US and Turkey is currently roiling various markets, with the greatest impact being felt by other emerging market economies. While there are fundamental reasons to be concerned about Turkey’s situation, we believe the current contagion to other markets is more a reflection of generalized investor anxiety about high market valuations and less about true economic linkages or similarities to Turkey itself.

At the root of Turkey’s problem is its reliance on foreign countries to finance its soaring current account deficit (a broad measure of a country’s trade with others), now at nearly 6 ...

Cutting Through the Noise

  • Political and economic events are happening at breakneck speeds, making it difficult for markets to fully process information as it comes in
  • The yield curve is a useful tool for cutting through this noise
  • Based on information in the yield curve, we may be approaching a pause in economic growth (at the very least) or a potential recession within the next 18 months
  • Higher equity market valuations and a flatter yield curve warrant caution on the growth side of portfolios and may signal a future opportunity to add longer-term bonds to the defensive side 

If you’re wondering what is ...

Policy Predicament

  • Strong wage growth in January ignited inflation concerns and sent equity markets tumbling


  • Talk of tariffs and trade barriers in March further dented already fragile investor sentiment


  • The cross currents of greater stimulus from tax cuts and a potentially inflationary labor market have put the Fed in a challenging position and increase the odds of policy mistakes


  • Valuations across asset classes remain high, with the exception of certain assets that are sensitive to accelerating inflation, namely commodities and emerging markets



It should be no surprise that the longest stretch of calm in market history ended as it did in Q1 ...

Uneasy euphoria

2017 was a good year for markets, almost too good in fact.  For the first time in history, the S&P 500 Index had no negative months during the calendar year. 2018 has started off with similar gusto, mostly off the back of year-end tax cuts, but there is a certain self-evident uneasiness about the euphoria this year. After all, how can a market go so high for so long without a meaningful pullback? Credit spreads are testing new lows, valuations across asset classes are stretched, complacency about risk is rampant, and, of course, volatility is at historic lows. The ...

Dissecting the Wall of Worry

  • Equity-market volatility hit an all-time low in Q3
  • Low volatility and strong equity markets were likely the result of improved economic fundamentals during the period
  • On the other hand, policy uncertainty, stretched valuations, excessive risk taking and a slight increase in medium-term recession risk warrant more targeted risk taking in portfolios


What does volatility tell us about market risk? If there was ever a quarter to ask that question, it was in Q3 when the CBOE Volatility Index (VIX) hit an all-time low of 8.84. During the same period, the US experienced three major hurricanes, political turmoil, serious doubts ...

Bye, Bye Backstop

  • Trump’s agenda of regulatory rollback, infrastructure spending and tax cuts is all but stuck in Washington’s ideologically fractured environment
  • Strong earnings made up for stalled policy and a lack of improvement on the economic front, with reported earnings for the S&P 500 up nearly 14%
  • The Fed may be moving from a focus on financial stability to one of monetary stability, which has important implications for risk taking
  • In the meantime, valuations remain stretched across a number of different asset classes

In Q2, the economic and political situation in the US began to feel a bit stuck ...

Tough Transition

  • The so-called “Trump Trade” began to lose steam toward the end of Q1 as it became clear that single-party control in Washington wouldn’t necessarily translate into quick results
  • Events abroad in Afghanistan, Syria and North Korea also took the President’s attention away from his aggressive domestic agenda
  • The Fed continued to hike rates during the quarter and shifted its tone from one of patience to one that is markedly more aggressive
  • Comparisons between our current economy and political situation to those of the early 1980s are not supported by the data


In Q1, President Trump began an unusually ...