The following is Sit Investment Associates' quarterly global outlook and strategy summary. This summary contains the collective opinions of our analysts and portfolio managers and is provided for informational purposes only. At the end of each calendar quarter, the full publication is available. While the information is accurate at the time of writing, such information is subject to change at any time without notice, and therefore, so may the investment decisions of Sit Investment Associates.

Global Outlook and Strategy

August 8, 2017

The combination of synchronized global growth and broad-based strength in corporate earnings contributed to ongoing gains in U.S. equity indices in July. Multinationals, particularly those with favorable exposure to the improving Euro Area economy and weaker U.S. dollar, continue to perform well year-to-date. Correspondingly, renewed strength in larger capitalization, growth-oriented equity indices in July has resulted in substantial outperformance relative to smaller capitalization, value-oriented counterparts so far in 2017. In terms of the U.S. economy, real GDP growth accelerated to +2.6 percent in the second quarter of 2017 from +1.2 percent in the first quarter, with positive contributions from consumer spending, nonresidential fixed investment, net exports, and government expenditures. As we have highlighted in the past, unprecedented global quantitative easing measures have dramatically reduced volatility across asset classes, increased stock correlations, and propelled equity markets higher. In light of heightened economic, fiscal, and monetary policy uncertainty, we believe a diversified, barbell strategy provides the most favorable risk/reward profile for equity portfolios. Pessimism over the lack of visible progress in Washington has provided a number of investment opportunities and, as a result, we continue to add judicially to positions in key policy beneficiaries in several industry groups, including finance, transports, defense, capital goods, and health services. Republican efforts to reform the ACA collapsed in July. With Congress away on their summer break, investors’ hopes for tax reform legislation this year are beginning to dim. In this environment, interest rates generally decline slightly as investors expect no further increases in the Federal Reserve policy rate until year-end at the earliest. The Federal Reserve is expected to begin reducing the size of their investment portfolio holdings on a gradual basis beginning in the fourth quarter of this year. Because of these factors, interest rates are expected to remain in a relatively narrow range for the next several months.

For more details, including a longer discussion on the recent low volatility of financial markets, please see Sit Investment Associates' July 2017 Global Investment Outlook and Strategy paper. Click here: Global Outlook and Strategy (Adobe Acrobat) or e-mail us at: siainfo@sitinvest.com.

 

August 17, 2017




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