Portfolio Strategists Jack Janasiewicz, CFA®, and Garrett Melson, CFA®, specialize in analyzing global capital market trends, identifying themes and risks, and applying those observations to asset allocation and portfolio construction. Each month they highlight five key macro trends to watch in Charts & Smarts®.
It ain’t me, babe: A common refrain from market participants is that the sell-off is a function of cooling growth expectations as policy uncertainty dampens sentiment and weighs on confidence. To be sure, uncertainty is denting those animal spirits that had emerged post-election, but so far this appears to be largely an unwind of crowded positioning in beta and momentum names, leaving the door open to further downside should a true growth scare emerge.
Like a rolling stone: Markets may not be fully reflecting a growth scare, but so far, the data is not off to a great start. Growth is not collapsing to the degree that the Atlanta Fed’s GDPNow model suggests, thanks to statistical noise from nonmonetary gold imports; but make no mistake, the narrative pendulum hasn’t swung nearly far enough to reflect the continued cooling in labor markets and consumption that likely lies ahead.
Blowin’ in the wind: Growth is slowing and inflation expectations are firming. No wonder rumblings of stagflation are once again on the rise. But not all inflation expectations measures are created equal, and the more reliable measure, courtesy of the New York Fed, is not confirming the politically charged spike in the University of Michigan data.
Masters of war: Markets love to swing from one extreme to the other. In that vein, historic outperformance of US equities over European equities in the wake of the election has given way to historic outperformance for European equities as the data has turned less bad and hope rises for a true regime shift in fiscal expansionism.
The times they are a-changin’: There’s nothing like price to change sentiment, and the stark outperformance of European equities has certainly resulted in a rapid shift in momentum with respect to asset flows. At long last, investors are beginning to rotate back to Europe, and while longer-term prospects may be growing brighter, in the near-term, risks of a catch down are likely to grow as US growth continues to slow and weighs on the global growth impulse.
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