With the final mid-term election results (mostly) decided, we can move onto contemplating the impact of the vote on the outlook for financial markets. In broad terms, the pollsters got it right. The Democrats regained control of the House of Representatives, and the Republicans added to their majority in the Senate. The prospect of a divided Congress, especially in the current hyper-partisan era, is likely to mean very little new legislation enacted in the next two years. Legislative gridlock is generally considered a positive for markets, since it reduces uncertainty. Nonetheless, the Trump administration’s unconventional approach to governing is likely to keep things interesting. […]
Last week’s extreme turbulence in global stock markets was preceded by a sharp rise in US interest rates. After fluctuating in a narrow range around 3% for most of the year, the bellwether 10 year US Treasury note yield spurted from 2.87% on August 31 to 3.23% on October 5, the highest level since July 2011. The rapid rise in yield was one of the reasons cited for last week’s brutal two-day selloff in stocks, which drove the S&P 500 down by nearly 5% and sent global stocks tumbling. […]
As indexing continues to garner a larger share of investor assets, some observers worry that we are approaching a natural limit in the proportion of common stocks that can be indexed. After all, if indexing means owning stocks without regard to their fundamental outlook or market valuation, what is the incentive to seek out companies with superior characteristics that will cause their stocks to rise faster than the market? […]
After a spectacular year in 2017, emerging market equities have badly trailed their developed market counterparts in 2018. As of this writing (August 14, 2018), the S&P 500 has gained 6.8%, the MSCI EAFE Developed International Index is down 3.8% and the MSCI Emerging Market Equity Index has declined 9.9% (all in US dollars). It has certainly been a rough ride. […]
Whether you love him or hate him, it is hard to deny that President Trump has an operating style that is unlike any president who came before him. Investors generally dislike uncertainty, and Trump’s unpredictability would seem to be a depressant on investor optimism. Yet the S&P 500 Stock Index has returned about 33% since the 2016 election, confounding the analysts who foresaw doom and gloom in an upcoming Trump administration. While Trump apparently views the stock market as a report card on his performance, he has shown no reluctance to press for policies that have rattled investor confidence. Given these countervailing forces, a number of our clients are asking the question: is Trump good or bad for investors? […]
The Massachusetts Supreme Judicial Court ruled yesterday that a ballot initiative that would have had Bay Staters vote this fall to raise the state income on its wealthiest residents is unconstitutional. The Fair Share Amendment, dubbed by some the “Millionaires Tax,” would have had voters decide whether to increase the income tax rate from 5.1% to 9.1% on incomes exceeding $1 million. The proposal will no longer appear on the November ballot. […]
Without our really noticing it, artificial intelligence (AI) is creeping ever more closely into our daily lives. From the Amazon Echo to self-driving vehicles to currencies that you can’t touch, AI is gradually transforming developed societies in ways we have yet to fully grasp. As artificial intelligence gets more sophisticated and weaves further into the fabric of human existence, what are the implications for work and society as we know it? […]
The Trump administration’s recent effort to impose tariffs on steel and aluminum imports into the United States has provoked a significant backlash among free-market economists, business leaders, and Republicans in Congress, among others. They worry that the imposition of protectionist measures designed to insulate domestic manufacturers from lower-cost foreign competitors could result in retaliation from foreign governments on other products that could expand into a full-blown trade war. As financial market investors dependent upon economic growth, how worried should we be? […]
Investors awoke from their multi-year slumber in late January to a nasty reminder that stock prices are volatile. After a period of calm in the stock markets that rivals the longest in recorded history, a jump in average hourly earnings and the recent backup in bond yields refocused investor concern on the prospect of higher […]
As of this writing (January 10), the broadest index of global stock market performance (MSCI ACWI) has gone more than 400 days without a pullback of 5% or more, the longest such streak in 30 years. It is no surprise, then, that experienced investors are riding the rally with one foot on the gas and a hand on the parking brake. The only thing we can say with certainty is that this streak will end, but the question is when. In the meantime, enjoy the ride. […]
At more than one thousand pages, the new tax reform package has plenty of both carrots and sticks for US taxpayers. Both the short- and long-term effects of the new legislation on economic growth in the US are uncertain at this point, but changes in the tax code will undoubtedly confer both benefits and penalties on certain segments of the US economy. Until the tax accountants ferret out every new wrinkle, let’s examine the most likely impacts that the new law will have on the investment landscape in the coming years. […]
US equity investors have been laser-focused on the tax reform debate occurring in Washington over the last few weeks. With economic data remaining firm and few economists forecasting a downturn in coming quarters, investor attention has been centered on the potential for meaningful earnings improvement as a result of lower corporate taxes […]
On Thursday, the House Ways and Means Chairman, Kevin Brady, ended months of speculation by releasing H.R. 1, the “Tax Cuts and Jobs Act,” detailed tax legislation that is the first step in possibly reshaping the country’s tax code. The bill is all-inclusive, including changes to everything from individual and business tax rates to the tax benefits of home ownership to 529 plans to the future of the estate tax […]
The Trump Administration today released its “Unified Framework for Fixing our Broken Tax Code” to flush out its tax reform priorities for individuals and businesses. The nine-page document is similar to the single-page bulleted outline the Administration rolled out in April and which we commented on then. Frankly, not much has changed in five months as the details of what will ultimately be a bill debated and voted on by Congress remain elusive.
As the residents of southeast Texas return to their homes and assess the damage caused by Hurricane Harvey, our thoughts and prayers are with them. Harvey’s torrential rains are likely to make this storm one of the worst natural disasters in our nation’s history. […]
One of the legends in the investment business (Byron Wien, long time chief strategist at Morgan Stanley, now at Blackstone, and a former mentor of mine) once described Europe as “a vast open-air museum”. Beyond its unique history and architecture, I believe he was referring to the continent’s antiquated labor rules, sclerotic decision-making processes[…]
The United States is now in its ninth year of economic expansion and third longest since the Civil War. If the expansion lasts another year, it will be the longest on record. With the 2008-09 recession a distant but still painful memory, investors are rightly wondering when it will all end.
Market watchers have noted the stunning growth of indexed vehicles over the last few years. Coupled with the ease of trading and transparency of exchange-traded funds (ETFs), the low cost and tax efficiency of indexing have led to a boom in the growth of these vehicles to the detriment of actively-managed mutual funds. With indexing […]
A much anticipated and, perhaps, over-hyped news conference rolling out the Trump Administration’s tax reform plan generated very little “new news” yesterday. Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn presented an outline of a plan that is very similar to the talking points the President promoted on the campaign trail. […]
As data continues to accumulate that reinforces the growing consensus of the superiority of passive indexing strategies over active management, the defenders of the old guard are fighting back. They are cutting fees, shuttering underperforming strategies, and merging businesses in order to reduce costs. The pressure is severe: according to Morningstar Inc., some $1.2 trillion has been withdrawn from actively managed U.S. stock funds since the start of 2007, while nearly the same amount has moved into passive U.S. stock funds over the same period. […]
The stock market abounds with colorful sayings that reflect the collective wisdom of decades of investment experience. For professional investors, these time-worn adages are reminders of sometimes-painful past market episodes and the unending challenge of getting the future right. But at the end of the day, can these slogans actually be useful in making investment decisions?
Irrespective of your political views, one must acknowledge that big changes are afoot in Washington. Trump supporters applaud the aggressive style of the new administration’s take-no-prisoners approach, while liberals cringe at the thought of the damage that might be wreaked on their fundamental beliefs over a four-year presidential term.
Since Donald Trump’s upset victory in the 2016 Presidential election, financial markets have been on a tear. Or have they? A casual observer of the business press would probably conclude that stocks and bonds around the world are rallying around President-elect Trump’s pro-growth, business-friendly, tax reform policies designed to “make America great again.” The reality, however, is somewhat different.
With last week’s historic election now behind us, investors are feverishly recalibrating their plans in light of its stunning outcome. The despair registered in the early hours after the polls closed on November 8 turned sharply into euphoria as investors focused on the “pro-growth” agenda of a Republican president and control of both congressional chambers. […]
The stunning upset in yesterday’s US presidential election has left many people in a state of shock. Although the polls indicated a tightening race over the last two weeks, very few observers predicted or believed in the possibility of a President-elect Trump. Yet here we are. If President-elect Trump fulfills many of his campaign promises, […]
After an exceptionally quiet summer in the financial markets, when the Dow Jones Industrial Average failed to move more than 1% for more than forty days, the calm was broken rather dramatically on September 9. The Dow shed nearly 400 points that day, and the following week has been a roller-coaster ride of big ups […]
In evaluating a money manager, informed investors naturally want to evaluate the manager’s track record. Has the manager delivered returns above the chosen benchmark? Have they assumed excessive risk in order to achieve those returns? What about the impact of fees and taxes? How reliable is the performance data provided by less-regulated private fund managers? These are just a sample of questions that investors should answer in order to validate a manager’s competence, and the answers are rarely clear-cut.
At Lake Wobegon, “all the women are strong, all the men are good looking, and all the children are above average.”
Despite being an obvious fiction, many people seem to apply a similar logic to managing their money. They believe that through their own superior insight, or by hiring investment professionals with many years of experience, they can “beat the market”. Their confidence is an inherent part of human nature, and is responsible for creating so much wealth in our society over time.