Topic Tags: International Economy

The Dollar Returns to Trend (and Could Go Lower)

The dollar has enjoyed an impressive run during the last few years on the backs of trade restrictions, off-cycle expansionary fiscal policy, and muted inflation. That said, the currency has weakened in recent months, as the U.S. Dollar Index — which measures the strength of the greenback relative to a basket of several international currencies — has dropped nearly 10% since the end of March. The index is now nearing its 30-year average of 91.2.

The dollar could fall even further in the near term given the current landscape. While it is unclear exactly how President-elect Joe Biden will govern along the political spectrum, the new administration will almost certainly take a more dovish approach with respect to international trade. A de-escalation of Trump-era tariff wars would be a boon to emerging market equities, which could create trouble for the dollar. Additionally, the lack of additional fiscal stimulus in the United States after the passage of the CARES Act in March, coupled with unprecedented expansionary efforts by the Federal Reserve, is a harbinger of a weaker greenback. Even a new relief package that is more modest in size may not be enough to prevent a further slide in the dollar given the extraordinary scope of the Fed’s support and a sustained low interest rate environment.

It is important to remember that a declining dollar does not necessarily spell doom for the U.S. economy. Goods produced in the United States become more attractive to consumers when the domestic currency is weak, which can lead to job creation in the manufacturing sector and economic growth. Increased global demand for American goods can also lead to trade deficit reductions. If current trends continue, investors will have to weigh these benefits against the costs of a weakening greenback, which include inflation and subsequent increases in commodity prices, as well as lower relative returns for dollar-denominated assets. Now more than ever, allocators should stress the importance of international and style diversification.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Welcome to Lockdown 2.0

As the market and world-at-large were elated by Pfizer’s announcement of positive trial results for its COVID-19 vaccine this week, we all brace for a winter run of global lockdowns and extensive virus spread mitigation measures. In the last three weeks, a number of European countries have reimposed nationwide limitations. Notably, starting October 30th, France reinstituted its spring lockdown rules which restrict residents to their homes except for trips to buy essential goods, medical appointments, and one hour of physical activity. Germany’s “lockdown light” began on November 2nd, closing all bars, restaurants, and theaters and limiting access to retail shops, though schools remain open. And within the U.S., we have seen several states roll out pandemic constraints as well, including Illinois, Maryland, and Washington.

This chart provides a quick snapshot of COVID-19 case tallies as of November 12th. Soberingly, these figures are rising at a pace much faster than the initial wave. We have seen how the spring cases and restrictions hampered productivity and brought a few nations into recessionary territory. In October, the IMF released revised global GDP growth estimates that were mildly positive, reducing the estimate from -4.9% to -4.4% on the back of eased summer restrictions and an influx of fiscal stimulus. While it is expected that fiscal stimulus measures will continue and could dampen the economic blow, global growth will remain depressed for 2020 and into 2021 as we work through this second wave.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

What Does the Biden Win Mean for Financial Markets?

On Saturday, November 7th, Joe Biden was declared the winner of the presidential election and will become the 46th president of the United States in January. Markets were surprisingly positive last week despite the uncertainty around results as multiple states were too close to call until all the votes had been tallied. While there is still pending litigation in certain states, it seems highly unlikely that these actions will reverse the election result. Thus, market participants have turned their attention to what the market can expect from a Biden-led White House coupled with a split Congress, while the coronavirus pandemic marches on.

In this newsletter, we tackle this question for each of the “traditional” asset classes: Fixed Income, U.S. Equities, and Non-U.S. Equities. The impact on alternative asset classes such as hedge funds, real assets, and private equity are more nuanced and will be covered in our 2021 market preview to be released in January.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Equities Falter Amid Uncertainty

October has been a tale of two months for equity market participants. While the first half of the month saw solid performance from risk assets, major equity indices have struggled in recent days as investors continue to grapple with political, economic, and public health uncertainty.

In this newsletter, we put the recent volatility and pullback into context, with an update on the resurgence of new coronavirus cases and global responses to the pandemic and a look at expectations for the coming months.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Third Quarter Review of Asset Allocation: Risks and Opportunities

The third quarter of 2020 featured a major rebound in economic data amid an intense battle for the presidency and an uncertain future for COVID-19 cases as some states are seeing higher positivity rates. GDP growth for the quarter is expected to come in at +35.2% YoY, higher than analyst expectations, which helped to propel equity markets higher during the quarter. In addition, the unemployment rate dropped to 7.9% but is expected to remain elevated until additional clarity regarding COVID-19 becomes available. Below are some highlights from the quarter:

  • Biden is favored over Trump in the election race, as mail-in ballots and virtual town halls instead of debates have proven that this election will be unlike any before it.
  • The country has widely reopened, though concerns in some larger states of increased positivity rates have caused some rollbacks ahead of the winter season.
  • A vaccine is in the works and anticipated to be ready by April 2021, with widespread vaccinations likely around mid-2021.
  • Schools have moved to a hybrid model of in-person and online classes, causing logistical problems for parents as many balance jobs and at-home learning.

The election is sure to bring additional volatility through the end of the year. Biden and Trump have vastly different tax plans and a Democratic sweep could drive a sell-off in equity markets. Economic data is still pending through 3Q, though most forecasts show large rebounds in data as states reopened from COVID-19 closures. Big questions regarding vaccines and if the winter will see a resurgence in coronavirus cases remain. We analyze what all of this means for each asset class in the remainder of this newsletter.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Q3 2020 Market Insights Video

This video features an in-depth analysis of the third quarter’s performance, coinciding with our 3Q Asset Allocation Update newsletter reviewing risks and opportunities heading into the final quarter of the year.

Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.

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For more information, questions, or feedback, please send us an email.

EM: Less About “ME” and More About “IT”

In 2010, the emerging markets equity benchmark was all about “ME” as materials and energy constituted 28% of MSCI’s Emerging Markets Equity Index. Today, however, they account for half of that, and IT and Consumer Discretionary have nearly doubled, growing from 19% in 2010 to 34% in 2020.

In September of 2018, MSCI adjusted its sector classification standards, partially in response to the increasing integration of the internet into all aspects of our communication and business transactions. This change specifically reclassified e-commerce to include companies providing online marketplaces for consumer products and services in the Consumer Discretionary sector rather than their previous IT classification. Alibaba — the largest stock in the index and one of the largest internet-based companies in the world — serves as one example of a company reclassified under the 2018 standards.

Emerging Markets have become less reliant on commodity prices over the past decade and we see this as a positive. Investors can benefit from the larger investment opportunity set which includes companies that are capitalizing on technology trends that played out in the U.S. throughout the 2010s and continue today, including e-commerce, online payment processing, and social platform businesses.

For more coverage on the Emerging Markets Index, reference our recent newsletter, The Changing Landscape in EM Equity.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The Changing Landscape in EM Equity

Over the last ten years, the landscape for emerging market equities (EM) has changed. In the first decade of the century, BRIC investing was popular with an emphasis on materials and energy. Since then, the benchmark exposure to Brazil and Russia has halved, sector exposures have changed, and many new companies have entered the index. The number of stocks in the benchmark has nearly doubled, moving from 754 in 2010 to 1,385 in 2020.

This newsletter will review some of the most significant changes to the EM investing arena and what that means for client portfolios.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

2020 Halftime Market Insights Video

This video features an in-depth analysis of the second quarter’s performance and coincides with our 2Q Asset Allocation Update newsletter, reviewing risks and opportunities heading into the second half of the year.

Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.

Sign up for research alerts to be notified when we publish new videos here. For more information, questions, or feedback, please send us an email.

Second Quarter Review of Asset Allocation: Risks and Opportunities

The second quarter of 2020 proved to be as eventful as the first, with slow economic results being largely ignored as markets rallied. GDP growth for the quarter is expected to come in at -35.5% YoY, though 3Q GDP projections indicate a significant rebound is expected as the country begins to reopen to “the new normal.” In addition, the unemployment rate came in at 11.1%, down from the April peak above 14%. Below are some highlights from the quarter:

  • Countries around the globe began reopening businesses amid fears of a second wave of COVID-19 infections.
  • Daily infections reached a new high in the United States at more than 50,000 per day, causing some states to roll back their reopening plans.
  • Weekly initial claims for unemployment insurance have continued to trend downwards.
  • Additional fiscal and monetary stimulus are expected in the second half of the year, bolstering markets.

COVID-19 has proven to be a potentially long-lasting concern as it remains to be seen whether we are in for a V-shaped or U-shaped recovery. Economic data is improving slowly, though markets have seemed to shrug off some of the negative news as the S&P 500 moved into positive territory over the one-year period. Though it may have fallen into the background due to COVID-19, 2020 is a presidential election year. Uncertainty surrounding the election will undoubtedly have an impact on forward-looking expectations. In this newsletter, we analyze what all of this means for each asset class.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.