Three reasons building and construction stocks have risen

Improved corporate profits, new activity could be key to future performance

Nick KalivasInfrastructure spending has been a hot topic since the November elections. Building and construction stocks have been buoyed by the outlook for infrastructure spending — most Democrats in Congress and President Donald Trump agree that additional spending is needed to improve our infrastructure. The Dynamic Building & Construction Intellidex Index rallied 17.73% between Nov. 8, 2016, and Feb. 21, 2017 — well ahead of the S&P 500 Index, which rose 11.23% during this same period.1 A cyclical recovery in the economy is also creating tailwinds for leading indicators of construction activity.

Here are three reasons I believe building and construction stocks have moved higher:

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How have factors responded to investors’ newfound optimism?

Pairing factors can help capitalize on market trends, while providing a potential hedge

Nick KalivasAlthough investment factors have shown the ability to outperform market-cap-weighted benchmarks over time, factors are cyclical by nature — falling in and out of favor depending on market conditions. In my view, a particularly useful way to assess performance and grasp shorter-term cyclical factor movements is by considering excess returns on a 12-month rolling basis.

Excess return is defined as the difference in return between a factor index or exchange-traded fund (ETF) and a benchmark index, such as the S&P 500 Index. Assessing excess returns on a rolling basis captures performance in overlapping 12-month periods — allowing investors to gauge the consistency of returns over time.

With that in mind, let’s take a look at rolling 12-month excess returns for a small sample of investment factors versus the S&P 500 Index. The chart below begins in April 2012, based on the inception date for the longest-tenured of these factor indices.

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Bond investors: Don’t fear the Fed

How diversified credit portfolios can help defend against rising interest rates

Waldner_Rob_sm_150dpi_RGBIn December, the US Federal Reserve (Fed) raised interest rates, as predicted, and raised expectations for more increases in 2017. At Invesco Fixed Income, we believe one of the best ways to handle a rising interest rate environment is to have a portfolio diversified across different credit-related asset classes. Below, we answer some frequently asked questions about how we approach diversification.

What is IFI’s overall outlook for 2017?

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From promises to policy: What’s in store for US stocks?

Trade agreements and tax reform could impact corporate earnings

Ryan AmermanAs of today, we have more questions than answers about what to expect from the new Donald Trump administration. Certainly, it appears the US president has a pro-business and anti-regulation outlook, but how exactly will this translate into policy, and how will corporations and trading partners react? That remains to be seen.

Three questions to watch

Less regulation would be positive for economic growth and investment, in the view of the Invesco International and Global Growth team. For example, tax reform — both on a personal and business level — could lead to increased discretionary cash flow and demand for domestic investments, which from a longer-term perspective could be positive for capital spending in the United States. Already, small-business confidence hit a 12-year high and chief executive officer confidence hit a 10-year high after the election.1

There are several questions, however, that bear watching:

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SEC moves to amend its circuit breaker rules

New reforms focus on issues that exacerbated the 2015 flash crash

Eric PollackovThe events of Aug. 24, 2015, were a wake-up call for many in the exchange-traded fund (ETF) industry. After a market selloff in Asia spread to North America on that day, a flash crash ensued — creating upheaval in the US equity markets. In addition to widespread market volatility, ETFs were hurt by diminished liquidity and price dislocation. This was due in part to the breakdown of trading mechanisms that were designed to prevent volatility.

Within a year, the Securities and Exchange Commission (SEC) enacted several changes designed to stem market volatility, including abolishing its controversial Rule 48 — a mechanism designed to ensure orderly trading, but one that created its own set of problems.

Left unresolved were harmonization between exchanges and the shortcomings of “limit-up/limit-down” rules. These rules were originally intended to put the brakes on extraordinary market volatility by halting trading in a security. But they occasionally do the reverse by reducing price visibility and preventing a security from recovering after a sharp price drop.

These issues are now being addressed. On Jan. 19, the SEC moved to amend its circuit breaker rules — formally known as The National Market System Plan to Address Extraordinary Market Volatility — by adopting what’s known as Amendment 12.

What is Amendment 12?

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Asian contrast: Japan falters as China transitions economy

Trump administration policies could potentially rattle economies of both countries

Jason_Mark_sm_150dpi_RGBAbsent the major reform investors have been hoping for, Japan’s economy remains largely stagnant, with the yen weakening over the last quarter of 2016. By contrast, China, along with the rest of Asia, seems poised for another year of relatively stable growth. The policies of US President Donald Trump, however, could potentially spur volatility in both economies. Let’s take a closer look.

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Trade secret: Emerging markets constrained by US policy uncertainty

Except for trade concerns, emerging market economies are generally on a positive trajectory

Cao_Steve_sm_150dpi_RGBUncertainty about US trade policy changes that could potentially harm emerging market economies dragged them down 4% during the fourth quarter of 2016, underperforming developed markets by 2%.1 Yet emerging market economies generally showed positive signs, with exports beginning to recover, commodity prices rebounding, and inflation remaining benign.

Country snapshots

Here’s a quick look at how individual countries fared:

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Buckle up and look for opportunity in Europe

Despite improved growth, political uncertainty may give investors a bumpy ride in 2017

Dennis_Matt_sm_150dpi_RGBA brimming political calendar will make 2017 an eventful year for Europe. While a bumpy ride seems all but certain, it could mean increased opportunity for investors, given the heavy political slate and investor skepticism.

Brexit and beyond

Brexit, of course, is on the world’s radar. On the heels of the UK’s 2016 referendum, Prime Minister Theresa May has pledged to trigger Article 50 of the Lisbon Treaty by March. That would begin the two-year window for the UK to extricate itself from the European Union (EU). Even with the exit details not yet worked out, the significant reaction to the vote

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Why non-US stocks have an EQV advantage — for now

Earnings, quality and valuation favor international equities, but three wild cards could change the landscape

Dennis_Matt_sm_150dpi_RGBA series of exceptional events led to wide swings in global equity performance from the first half to the second half of 2016. Looking into 2017, the Invesco International and Global Growth team is generally more constructive on non-US stocks (versus US stocks) from an earnings, quality and valuation (EQV) perspective, although we are keeping our eyes on three potential wild cards that could affect the outlook.

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Financials and energy: Have value investors missed the boat?

Post-election excitement is rising, but valuations continue to signal opportunity

Kevin HoltBeing a deep value investor can be a lonely endeavor. We crunch the numbers to find unloved companies that we believe have bright futures ahead — years ahead, in many cases. But if you wait long enough, market sentiment can shift and your previously unloved holdings may suddenly appear on everyone’s radar screen. That’s exactly what the deep value Invesco Comstock Fund is experiencing right now. But it’s not just two or three names that have recently gained investors’ attention; more than half of the portfolio has been pushed into the spotlight following the election of President Donald Trump.

That’s because

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