In recent weeks, investors have been puzzling over<\/a> stocks rising while bond yields fall, responding differently to the same economic data.<\/p>\n
A report from Richardson GMP<\/a> noted the “magic combo” of lower yields and dovish central banks enabling equity markets to reach fresh highs.<\/p>\n
Even after the strong period from January to June, stocks are at “a decent distance below fair value,” RBC Global Asset Management’s Summer 2019 Global Investment Outlook<\/a> said. The challenge for equities at this point is stalled earnings growth rather than valuations.<\/p>\n
RBC said it has reduced its overweight allocation to equities by half a percentage point, “moving further along the path of de-risking our portfolios as the business cycle matures.”<\/p>\n
In addition to trade uncertainty, the outlook report cited late-cycle signals including low unemployment and an inverted yield curve to “gauge that the risk of recession is higher,” justifying moves to reduce risk in portfolios.<\/p>\n
The firm moved the proceeds from equities to cash rather than bonds due to fixed income valuation risk and low sovereign bond yields (Japan and Germany are in negative territory and U.S. bond yields are 100 basis points below their 2018 high).<\/p>\n
“The threat to sovereign-bond prices stems from the potential for a significant increase in real interest rates,” the report said. “Our models assume that real interest rates will inevitably rise to their long-term average, acting as a headwind for bond prices that could lead to low or even negative total returns in fixed income for a very long period into the future.”<\/p>\n
RBC raised its expectations for global growth to 3.5% for 2019 and 2020. National Bank Financial (NBF), in its monthly economic report<\/a>, forecasts global GDP growth of 3.3% this year and 3.5% in 2020.<\/p>\n
The Bank of Canada will hold this year and raise its rate to 2% in 2020, the NBF report said.<\/p>\n
Read the RBC GAM outlook here<\/a>, Richardson GMP’s Market Ethos here<\/a>, and National Bank Financial’s monitor here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"