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Volatility is up, but stocks still look good (Nuveen)
“So far this year, equities have held their ground in the face of softer growth and declining earnings expectations,” Nuveen’s Bob Doll said. “Volatility levels have risen a bit in recent months and we think volatility will remain moderately elevated. The extreme rally in the dollar and the precipitous decline in oil prices that began in mid-2014 appear to have been overdone and are starting to reverse. This is causing investors to scramble to reposition their portfolios. The pending shift in Fed policy is also causing some measure of market turbulence.
“We expect both economic and earnings growth to improve in the coming months, which should result in a strengthening tailwind for equities. We also expect these same factors to put increased pressure on government bonds, especially since inflation levels are starting to rebound. As such, we continue to favour equities within multi-asset-class portfolios, believe government bonds will be pressured by rising rates and would suggest underweight positions in commodities. “
There’s a new “world’s biggest bond fund” (Bloomberg)
Pimco’s flagship Total Return fund has lost its title as the world’s biggest bond mutual fund to Vanguard Total Bond Market Index Fund, according to Bloomberg’s Mary Childs.
“Investors pulled $US5.6 billion from the Pimco Total Return Fund in April, after redemptions of $US7.4 billion in March and $US8.6 billion in February, according to estimates from the Newport Beach, California-based firm,” writes Childs. “With assets of $US110.4 billion, the fund fell behind the index-tracking Vanguard Total Bond Market Index Fund, which had $US117.3 billion as of April 30, according to preliminary data.”
“Turning 70 is something that all of us should hope to do but fear at the same time,” Gross grimly mused in his monthly investment outlook for Janus Capital.
“At 70, parents have died long ago, but now siblings, best friends, even contemporary celebrities and sports heroes pass away, serving as a reminder that any day you could be next. A 70-year-old reads the obituaries with a self-awareness as opposed to an item of interest.”
He then tied everything into today’s market: “…the current bull market is not 35 years old, but twice that in human terms… Asset prices may be past 70 in ‘market years.'”
“This is all ending. The successful portfolio manager for the next 35 years will be one that refocuses on the possibility of periodic negative annual returns and minuscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns, if only by 300 to 400 basis point,” he added.
“We seem to be undergoing a market sentiment change as fresh signs appear that US inflation has bottomed,” writes Sober Look blogger Walter Kurtz.
“Perhaps the most telling sign that inflation sentiment has shifted is the record jump in inflation funds inflows (ETFs and mutual funds),” he noted.
In response to the four-year drought in California, Governor Jerry Brown issued the first-ever statewide water conservation mandate.
“While this could reduce revenue at California water utilities, we think it’s unlikely to hurt the credit quality of those utilities ‘ municipal bonds. We also believe the restrictions won’t have a significant impact on the credit quality of the state’s general obligation (GO) bonds,” write Charles Schwab’s Cooper J. Howard and Rob Williams.
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