By: Dave Chenet, CFA, CAIA®
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||3.96%|
Source: YCharts, Yahoo! Finance, WSJ
Markets began the month of March on a positive note, with gains in cyclically sensitive sectors such as energy, materials, and industrials more than offsetting losses in utilities and healthcare. On the economic data front, relatively strong global economic data suggested continued central bank tightening may be appropriate in light of inflation remaining above policy targets.
Bond yields, were largely unchanged, settling just below 4% on the benchmark 10-year bond. Investors, however, are increasing their bets that the Federal Reserve will raise the Fed Funds rate by 0.5% at the conclusion of the March 22nd meeting. Likewise, markets had entered the year with an expectation that the Fed would be cutting rates by year-end, but now see three quarter-point hikes by the end of the year.
As markets continue to struggle with the unwinding of the unprecedented levels of fiscal and monetary stimulus and the trade-off between growth-restrictive monetary tightening and excess inflation, navigating current financial markets requires a large dose of caution. Investors must look closely at their asset mix relative to their liquidity needs and financial goals. A disciplined investment strategy in which decisions are made based on data over emotion will help keep investor portfolios on track despite choppy waters.
What We’re Reading:
Reuters: US seeks allies’ backing for possible China sanctions over Ukraine war
WSJ: Long-Robust U.S. Labor Market Shows Signs of Cooling
FT: Amazon Pauses Construction on its Second Headquarters in Virginia
Chart of the Week:
Index results do not reflect fees and expenses and you typically cannot invest in an index.
In recent years, one of the major arguments for equity market bulls was that “there is no alternative” (referred to as TINA); the crux if this argument that was investors fundamentally choose between buying stocks and buying bonds. When bond yields were extremely low, stocks appeared much more attractive. Today, we are squarely in the TARA (there are reasonable alternatives) territory. The yield on the 2-year treasury is roughly in-line with the S&P 500 earnings yield…for the first time in two decades!
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