April 14, 2021
By DeFred Folts III, Managing Partner, Chief Investment Strategist, and Eric Biegeleisen, CFA, Managing Director, Research Portfolio Manager
Equities:
U.S. Equities: Major U.S. equity market indices continue to reach all-time highs as well as record levels of overvaluation by our measure. However, even at elevated valuations, monetary and fiscal stimulus remains supportive. In addition, high-yield credit spreads remain narrow. A steepening global yield curve is also a positive development signaling higher growth prospects. U.S. equities also continue to benefit, at least in the short-term, from positive price momentum and favorable investor behavior which could be described as market euphoria. The extreme level of overvaluation of the U.S. equity markets continues to highlight their potential downside risk.
April 9, 2021
By DeFred Folts III, Managing Partner, Chief Investment Strategist, and Eric Biegeleisen, CFA, Managing Director, Research Portfolio Manager
Summary
Japanese equities are reasonably valued and continue to benefit from the Bank of Japan’s aggressive monetary policy.
U.S. equity markets have never been more overvalued in our analysis; however, they continue to benefit from monetary and fiscal stimulus. Although
European and
Emerging Market equity valuations have also become stretched, better growth prospects are indicated by our yield curve measures.
U.S. Treasuries continue to yield less than the market’s expected inflation rate. The Fed continues to support
April 9, 2021
By DeFred Folts III, Managing Partner, Chief Investment Strategist, and Eric Biegeleisen, CFA, Managing Director, Research Portfolio Manager
Equities:
Japanese equities remain the most attractive of the equity asset classes we model. These factors include: more compelling valuations; a steepening yield curve; and a continued narrowing of high-yield credit spreads. The Japanese economy may benefit from improved growth prospects supported by sustained monetary and fiscal stimulus. The potential for improving investor psychology could further enhance the outlook for Japanese equities.
U.S. equity markets continue to hover around all-time high levels of overvaluation by our measure. However, monetary and fiscal stimulus remains supportive. In addition, high-yield credit spreads continue to narrow as high-yield bond yields decline while investment-grade yields increase in line with the U.S. Treasury market. U.S. equities also continue to benefit, at least in the short-
April 9, 2021
By DeFred Folts III, Managing Partner, Chief Investment Strategist, and Eric Biegeleisen, CFA, Managing Director, Research Portfolio Manager
Summary Japanese equities remain fairly valued and may benefit from improved growth prospects supported by sustained monetary and fiscal stimulus.
U.S. equity markets remain overvalued by our measures; however, monetary and fiscal stimulus remains supportive. Should recent increases in short-term interest rates in
Emerging Markets continue, this could signal a monetary tightening and create a headwind for continued growth. European equities remain mixed.
U.S. Treasuries continue to provide an unattractive risk-return trade-off. While the Fed continues to support
credit markets, risks remain due to the record amount of corporate debt.