Despite weak economic data and mediocre earnings, stocks have rallied sharply on expected additional monetary stimulus from the European Central Bank (ECB). Last Thursday, Mario Draghi announced that the ECB was looking into additional monetary stimulus measures. Risk markets around the globe rallied on the view that monetary policy would remain easy and additional stimulus was possible. On Friday of last week, the Peoples Bank of China (PBOC) cut interest rates for the sixth time this year to combat slowing growth and deflationary pressures. Chinese growth this year is on track to be the slowest in 25 years.
I continue to expect that risk markets will post decent performance for the next few weeks as the factors that have led to the recent rally should remain in place. I expect U.S. treasury bonds to be under pressure at the long end of the yield curve as monetary policy stimulus and central bankers focused on accommodation will keep investors skittish about rising rates.
This week we hear from the Federal Reserve on monetary policy and the state of the U.S. economy. I am not expecting any surprises from the Fed, but the minutes may shed some insight on their current thinking.
Additionally, pay attention to any new information on the debt ceiling, as we should hit the cap in the next two weeks.
This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.