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The Economic Expansion And Bull Market Aren’t Over Yet (Nuveen Investments)
This week during the FOMC meeting, the Fed is expected to “drop the phrase ‘considerable time’ when discussing how long it intends to keep the fed funds rate anchored at zero”, according to Bob Doll. This decision will give the Fed more flexibility in its approach to monetary policy, and many now believe that the Fed will begin increasing rates next year.
“Typically, economic expansions and bull markets come to an end when inflation pressures are building, which cause the Fed to begin tightening monetary policy in an effort to curb growth. We are expecting the central bank to begin gradually tightening next year, but this move would not come as a result of higher inflation, but rather as an acknowledgment of improved growth,” according to Doll.
In other words, the economic expansion and the bull market run aren’t over yet. There will be “episodes of volatility and periodic equity market setbacks” but overall, the economic backdrop remains “supportive of economic and earnings growth” — which will lead to rising equity prices.
On the flip side, the ECB is “still ramping up its easing policies” and Nuveen Investments anticipates that the Bank of Japan will “engage in additional easing measures as well.” Nuveen attributes the US’s differing stance as the primary reason why the US dollar has experienced “notable appreciation over the last few months”, while the eurozone and Japan are still struggling.
“For decades, the financial services industry has positioned retirement as the ultimate goal, the end game. Today we’re discovering that retirement is just another life event, like a ‘graduation’ from work,” wrote Jan Blakeley Holman, director of advisor education for Thornburg Investments, in a series of articles for advisers.
Prior to a client’s retirement, advisers must focus on helping him/her accumulate wealth. Afterwards, they need to help operate the more complicated part of wealth management: namely, the preservation and distribution of accumulated money during retirement.
In order to help navigate a client’s post-retirement finances, advisers need to take into consideration a client’s household income, sources of income, desired lifestyle, and health considerations, among others. Such factors will analyse what a client’s financial future could look like.
Additionally, “rather than generate predictions about a portfolios probability of success or failure, financial services firms should focus on answering specific questions about how much clients can spend in retirement and how they should alter their investment strategies to accomodate their needs.”
In the past, big brokerage firms “typically steered clear of the student set and sought out recruits who weren’t so young,” according to the WSJ’s Corrie Driebusch. But now, many veteran advisers are “nearing or at retirement age” and there’s been a shortage of talent to replace them.
As a result, firms such as Merrill Lynch have started to offer internship programs to college students. Additionally, colleges have started financial planning programs where students work with the Certified Financial Planner Board of Standard, Inc. to “provide students with the education requirement for the group’s financial planner certification.”
However, there’s a problem. Only about one-third of students “who graduated from a college program that prepares them for the CFP certification actually choose to sit for the CFP exam” and programs have noticed a recent decrease in enrollment. Only approximately 50% of students get a passing grade, which is definitely a contributing factor to why less and less are taking the courses..
The possibility of Scottish independence is worth paying attention to, according to Josh Peters. Right now, we’re already seeing an immediate impact from the vote: the British pound is dropping relative to the dollar, which is “a reversal of a trend that’s been in place here for a while.”
For those invested in British stocks, you’re looking at a short-term loss of value in dollar terms. That’s because the price of the stock of British companies is effectively set on the LSE.
Although it’s always difficult to predict currency trends, this trend could potentially continue. In the past, Britain’s economy is better than continental Europe’s, and it has “had the advantage of performing a lot better”. But if Scotland votes yes, “you may see a period where the pound is no longer going up but maybe going sideways or going down,” which will impact UK investments.
Global Real Estate Stocks Are A Way Better Choice Than REITs (AllianceBernstein)
US Real Estate Stocks (REITs) “have been strong performers since the global financial criticism” according to AllianceBernstein’s Eric Franco. The stock index has nearly quadrupled since March 2009, and has outpaced global property stocks and the broader US market. “But although the US property market fundamentals remain quite healthy, the valuation of US REITs isn’t nearly as attractive as a few years ago — even when compared with government bonds.”
On the flip side, non-US real estate stocks look relatively attractive. While the cash-flow yield for US real estate stocks versus the 10-year Treasury is now “only slightly above its long-term average”, while the cash-flow yield for non-US real estate stocks relative to a composite 10-year sovereign bonds remains “well above its long-term average.”
Additionally, “non-US real estate stocks prices have recently been less sensitive to changes in sovereign yields.” On the flip side, US REITs have “reliably” outperformed the S&P500 when Treasury rates declined and have “reliably” underperformed when rates rise.
Finally, non-US REITS are also exposed to diverse interest-rate environments. Places like Japan, Australia, and Europe are “unlikely” to see rising interest rates anytime soon.
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