Our perspective on global micro event and strategies.
Nanette’s views on market trends and opportunities draw on her long experience in the capital markets. She shares her insights with sub-advisory clients, as well as major broker-dealers and distributors. She also consults on strategic portfolio issues with clients, including insurance companies, endowments and foundations, pension funds and central banks. Nanette is a primary contributor to Wellington Management’s thought leadership, writing the firm’s most widely read publication, our quarterly Multi-Asset Outlook, as well as white papers on a variety of asset allocation topics.
In my last blog post, I provided a little perspective on the crowd-sourced frenzy that gripped the markets back in February 2021. Late March saw another bout of short-lived market mania. Here are my thoughts on that.
A US-based family office managing concentrated, levered gross exposures (similar to hedge funds) in total-return swaps1 estimated to be valued at around US$40 billion, with 10x leverage, pushed up prices for a small set of stocks. When prices subsequently went down, margin calls from prime brokers (PBs) came flooding in from multiple market players. With the fund unable to cover those calls, PBs were forced to liquidate some US$30 billion of exposures.
Three observations on this episode from my vantage point:
Interest rates have been rising since August 2020, with the yield on the 10-year US Treasury bond having drifted 100 basis points (bps) higher over the past six months or so. But recent rate action has really caught the market’s attention, particularly the 10-year yield’s swift 30 bps increase and the spillover into global equity markets.
Is the latest bout of “rate repricing” due to higher inflation expectations? Stronger economic growth? Treasury supply issues? “Fed fighting”? Let’s try to make sense of it all.
Yields have risen for the right reasons — Rates have been adjusting to prospects for better growth and higher inflation for months now, reflecting an improving pandemic outlook and ample policy support. Rising inflation expectations are baked into wider spreads between Treasury yields and real (inflation-adjusted) yields, using 10-year Treasury Inflation-Protected Securities (TIPs) as a proxy. Orderly rate moves have been absorbed by…
Commentators have written extensively about the recent surges in various pockets of the equity market — most recently, in heavily shorted stocks. Given the complexity and opacity of this market segment, the breathtaking moves left many investors understandably unsettled. While there is still more to learn about the volatility unleashed by the so-called “short squeeze,” for now, I’d like to address some client questions about the episode and attempt to put it in a larger context.
A group of retail investors identified a handful of beaten-down stocks deemed to be “COVID losers” and went long these companies, both outright and on a leveraged basis via options. Positive investor sentiment in combination with thin market liquidity drove the stock prices higher. Call options buying accelerated the upward climb, as banks (which sold the options) had to…
In this 25-minute video, Geopolitical Strategist Thomas Mucha, Macro Strategist Michael Medeiros, and Multi-Asset Strategist Nanette Abuhoff Jacobson explore the investment implications of Biden’s domestic and foreign policy agenda and opine on which asset classes, factors, and industries they expect to outperform in this new environment.
In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.
There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.
Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…