Consensus View Shifts To “Sustainable” Recovery, Even With Inflation Worries
The roots of the U.S. economic recovery continue to gradually expand their reach, and investor perceptions are becoming more uniformly positive. This is remarkable given the significant events across the Arab world, Japan and peripheral European countries like Portugal. New jobs are suddenly approaching “peak” average levels from the two previous recoveries, the consumer continues to quench strong pent-up demand with robust spending, and manufacturing is re-accelerating. Housing remains weak, but few expect much from this sector for the time being.Download PDF
Confidence In Equities Rising
In spite of a number of geo-political concerns and significant natural events, U.S. corporate profits reached record levels in the fourth quarter of 2010, driven by the financial sector, and confidence in stocks rose. Inflation will likely increase and interest rates are sure to follow. But we feel that these increases will be constrained and, in terms of their impact on stock prices, are likely to be offset by the benefits of moderate inflation on corporate pricing power.Download PDF
Fixed Income Portfolios
Positioning For Higher Rates, But Expecting Increases To Be Constrained
Strong growth and higher inflation pressures are leading markets to anticipate the Federal Reserve’s removal of its aggressive stimulus and, consequently, somewhat higher interest rates. However, bonds can and should play a role in many portfolios for income and risk-mitigation reasons. We also continue to find value in high-yield bonds for select portfolios. These fixed-income instruments are more driven by their credit characteristics and, in fact, tend to have shorter durations, which reduce their exposure to rising interest-rate risk.
Municipal bonds, recently the focus of many concerns, have not melted down as many anticipated. Risks remain abundant, however, but are somewhat mitigated by our strategy.Download PDF