![]() Investors may need to tighten their seat belts when Congress returns to Washington, especially if the conversation veers from policy needs to political gamesmanship.#throwback to February 18th 1981 and one of the most iconic moments in Irish TV history □ “We’re building an airport, and I hope the Department of Transport doesn’t hear about it, now don’t tell them, and we’re going to have it built in a very, very short time.and we have no money, although we’re hoping to get it next week, or the week after” Monsignor Horan - A visionary ahead of his time □Ģ.1K Likes, 40 Comments. Some Republican members have indicated that they plan to hold hostage key elements of approved Biden policies which address long-term under-investment in infrastructure and climate resilience. Basically, Congress is asked to allow the Treasury to raise funds for activities that were previously approved and on which money has already been spent. These periodic adjustments are a peculiar feature of US fiscal policy. The next increase in the federal debt ceiling is at risk. ![]() Indeed, economic history shows that this is the more common condition.Ī divided US Congress offers little protection from volatility. Although the vigour of recent rallies is far more pleasant, it is nevertheless a reminder that moves can occur in big jumps. The 2022 declines in bond and share prices, the rise in the dollar and other adjustments occurred with a rapidity and ferocity that alarmed many market participants. This had implications not just for the overall asset class, but also the relative valuations of the fastest growing companies. Similarly, US equity managers assumed valuations would be only modestly and gradually impeded by rising rates, and there would be only a slight deceleration in the pace of earnings gains. Most fixed-income managers made only incremental cuts in their allocations and portfolio duration. Consensus forecasts were that interest rates would rise only modestly and gradually. Added to the mix is international anxiety over military action, both threatened and real, in Europe and Asia.Īsset managers, as recently as early 2022, nevertheless assumed that they would be able to “time the market” because of their narrow focus on a few variables that were expected to stay within narrow bounds. Big changes in sovereign currencies, and failures in some digital currencies and platforms, have policy repercussions. ![]() The longer-term policy implications, on prices, trade uncertainties, income distribution and so on, are still not fully understood. This follows governments’ earlier readiness to make dramatic fiscal policy changes in the face of the pandemic and in response to disruptions in both aggregate demand and supply. But the underlying fundamental conditions have clearly changed, and incrementalism is no longer the winning strategy.Ĭonsider the implications of the current willingness of central bankers to make large and repeated adjustments in policy rates in response to inflation. This was enhanced by capitalisation-weighted index funds and ETFs. ![]() In equity markets, investors gravitated toward the shares that had already outperformed and whose market capitalisations were therefore rising. Asset classes that performed well generally continued to do so, as did the investments within them momentum was a powerful factor driving relative performance. Exceptions, such as around the global financial crisis or the early stages of the pandemic, were viewed as just that: exceptions. Monetary and fiscal policy adjustments were typically small and easily anticipated. For example, developed economies enjoyed decades of generally mild-mannered inflation and well-controlled interest rates. Incrementalism, both in government policymaking and portfolio management, had been fostered by several factors. The mathematical assumptions built into many models that changes would occur in small, regular increments were in error. The bottom line is this: widespread expectations this year that big changes might be afoot but would occur only gradually and smoothly were mistaken. Applying the usual metrics of volatility, such as standard deviation, is less interesting than a review of the underlying catalysts. ![]() There have been wide gaps in economic and corporate performance, sharp changes in government policies and abrupt swings in the pricing of financial assets. Expectations have dramatically shifted throughout the year in many countries. ![]()
0 Comments
Leave a Reply. |