Yields on ten-year Treasuries dropped below 50 basis points (bps) today for the first time in history as COVID-19 fears spread. While we cannot rule out a recession, given the uncertainties associated with the virus and its impact on economic activity, we believe today’s low yields are less about long-term growth forecasts and more about expectations of further Federal Reserve easing, risk aversion, and liquidity preferences.
The US Federal Reserve cut its policy rate by 50 basis points today, highlighting the serious challenges facing the global economy. Still, we don’t believe investors should cut risk. Very few have an informational edge regarding COVID-19’s market impact, and investors could be left underexposed when and if markets rebound.
We see opportunities to deploy capital in some niche areas of the investment landscape and reshape (or at least re-evaluate) some areas of the portfolio.
Fish, but only if investors can accept very lumpy returns. The SG Trend Index of ten large trend followers (e.g., Commodity Trading Advisors or managed futures strategies) fell more than 4% in both September and October and only matched cash’s return over the past five years.
Our thoughts on key macro questions, emerging opportunities, and risks in 2020.
Investors that have inflexible spending needs and large allocations to illiquid assets should plan how they will tackle the next downturn’s liquidity challenges.
Although we are more cautious heading into 2019 than we were 12 months ago, we still think a roughly neutral allocation to risk assets is the right approach.
Last month’s sell-off was mainly a reaction to macroeconomic headwinds that have been building this year; recent and expected corporate earnings growth has not weakened much. A handful of earnings disappointments by highly valued and high-profile tech firms have spurred vicious sell-offs, but these have been outliers. Building macro concerns and a few downbeat earnings calls translated…
In this report, we briefly highlight five key post-GFC developments and discuss how investors might adapt their portfolios to these changes.
Investors with thoughtfully diversified portfolios, which incorporate sufficient liquidity, should stay the course amid today’s trade tensions.