Market Update: Recalculating…

When heading to a destination, many turn to Google Maps or other GPS apps for turn-by-turn directions. You have advance notice of turns, left-hand exits, and even accidents or road construction. Should you miss a turn, they recalculate your journey without judgment. No such reliable guide exists for investors, as the future of markets is impossible to map. Prudent investing therefore becomes an exercise in “recalculating” without a map, and building portfolios must take this reality into account. Confounding expectations are a regular feature of the markets and the fourth quarter was no exception. Clearly, the most surprising event was the election of Donald Trump, defying most experts’ predictions. This surprise poses many implications going forward, but the biggest impact on markets to date has been the rapid rise in interest rates. The move actually began before the election, as the 10-year Treasury moved from 1.6% on September 30 to 1.9% on Election Day. To be sure, the subsequent move to 2.5% by year-end was more impressive as investors fully embraced an expected pick-up in growth and inflation (see chart below). This recognition coincided with the increased likelihood of a Fed rate hike, which happened in December.

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Posted: March 24, 2017 | In: Investment Commentary