Global CIO Commentary by Scott Minerd
Although the just-ended government shutdown will be a drag on fourth quarter economic growth, the underlying U.S. economy still has a great deal of torque and the outlook for investments is improving. Historically, in the month following government shutdowns interest rates decline by an average of 39 basis points. It is becoming clear that the three-week government shutdown has damaged the economy, at least in the short-term. For these reasons and the likelihood that the U.S. Federal Reserve will not taper its asset purchases until next year, we see the yield on the 10-year U.S. Treasury note declining to a level below 2.5 percent. Despite the near-term economic softness, we expect a reacceleration of growth at some point in the first half of 2014. Equity markets anticipate events about six months in advance, which means now could be a favorable time to consider increasing allocations to stocks. The first game of the World Series – hopefully the Los Angeles Dodgers against the Boston Red Sox this year – is normally a solid entry point for equities. Against this backdrop, the international investment picture is also improving, and we could be entering a period of substantial improvement for risk assets across the globe. In addition to turning more bullish on U.S. stocks, I remain bullish on emerging markets, and I am still heavily bullish on European equities, which remain more than a third lower than their 2007 highs. I am also bullish on fixed-income – corporate rather than sovereign debt – and believe credit spreads have further room to tighten. The current environment looks favorable for risk assets into the second quarter of next year.
Improving Euro Zone Macroeconomic Expectations Point to Earnings Recovery
The ZEW euro zone macroeconomic expectation index rose to a 4-year high of 59.1 in October, indicating a majority of financial analysts and institutional investors are now optimistic about the euro zone economy over the next 6 months. This survey has historically been a leading indicator for euro zone corporate earnings and given the strong economic outlook in the region, we expect a sustained recovery in corporate earnings, creating a tailwind for European equities
EURO ZONE ZEW MACROECONOMIC EXPECTATIONS VS. EURO STOXX 600 INDEX EBITDA* GROWTH
Source: Bloomberg, Haver Analytics, Guggenheim Investments. Data as of 10/17/2013. *Note: EBITDA refers to Earnings Before Interest, Taxes, Depreciation, and Amortization.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
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*Assets under management is as of 6.30.2019 and includes leverage of $11.2bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
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