Global CIO Commentary by Scott Minerd
U.S. #equities are in a healthy correction that will create buying opportunities for long-term investors.
Today, economic fundamentals in the United States are as strong as they have been since 2011. One would expect, therefore, that bond yields would rise and equities would rally. Instead, recent turmoil in emerging market countries has led to lower Treasury yields and a sell-off in U.S. equities.
Now, with the 10-year Treasury yield sitting at about 2.67 percent, there is probably more risk that interest rates will decline further rather than rebound over the short-term. However, the window for bond prices to rise is limited, so selecting credits carefully is key. Over the longer term, improving economic fundamentals in the United States will ultimately drive interest rates higher.
The indicators that I typically follow do not suggest that we have established a major top in the U.S. stock market. The current sell-off feels more like a healthy correction, the first since the last major correction in 2011. I am somewhat surprised by the timing of the latest rout, given the typical seasonal strength in January and February, but the U.S. Federal Reserve is finally letting markets self-correct after years of intervention since the 2008 financial crisis. We will likely look back on this time as an opportunity to buy.
Conventional Correlation between Stock and Bond Markets Returns
Historically, rising equity prices have been associated with falling bond prices (rising bond yields), as stronger economic fundamentals drove investors to stocks and away from bonds, and weaker economic growth produced the reverse. However, over the past few years, equity and bond prices began moving together as both markets were inflated by floods of liquidity from accommodative U.S. monetary policy, which distorted the traditional relationship. After tapering of quantitative easing by the U.S. Federal Reserve was first suggested in mid-2013, markets began returning to more normal correlations, driven not by expectations of continued quantitative easing, but by the economic outlook.
S&P 500 AND 10-YEAR TREASURY YIELD
Source: Bloomberg, Guggenheim Investments. Data as of 1/31/2014.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 09.30.2020 and includes leverage of $14bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.