US/China trade conflict creates factor opportunities

Low Volatility and Quality offer potential benefits in stressed markets

Time to read: 3 min

In my discussions with clients from around the globe the past few months, I have been presenting the view that the US/China trade conflict will be a long, hard-fought battle that will likely play out over years, not months — and I still believe that despite the nations’ recent agreement made at the G-20 meeting. If the trade dispute indeed persists, the disruption is likely to weigh on economic growth rates, and equity markets are likely to continue to exhibit higher-than-average levels of volatility. In this scenario, I believe the Low Volatility and Quality equity factors may be especially attractive.

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Has the market been deFANGed?

Familiar growth names have led during the market’s rise — and its fall. So what may come next?

Time to read: 3 min

Investors have been predicting the end of the current bull market for years, but it’s continued to age well. From 2009 through 2017, the total return of the S&P 500 Index was positive every year.1 And even after a volatile autumn, the index was still in the green for 2018 as November came to a close. But there’s one month left to go in the year, and volatility has recently increased among the FANG stocks (Facebook, Amazon, Netflix and Google/Alphabet2). This has led to investor concerns as these stocks have led the market on the upside and the downside. So is this finally the end of the bull market? I believe the recent FANG underperformance has less to do with the companies themselves, and more to do with the overall macro environment. With no clear case for continued underperformance, I expect these companies to recover from the recent selloff.

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Stock losses snowball across the globe in a December sell-off

We expect continued volatility as markets overreact to positive and negative news

US stocks began a dramatic sell-off on Tuesday that has continued and spread to other parts of the world, creating intense headlines across the globe on Thursday. There has been a flight to the perceived safety of sovereign debt. The yield on the 10-year US Treasury fell dramatically, from more than 3% at the start of the week to 2.83% as of this writing1 — and other major sovereign debt yields also followed suit. Some areas of the yield curve inverted, and the 2-year/10-year yield curve is in danger of inverting.

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‘Tis the season for diversification

Equity markets send a timely reminder about diversifying into alternatives

Time to read: 3 min

This fall has been a challenging season for equities. In October, the S&P 500 Index declined approximately 9%,1 while volatility, as represented by the VIX Index, more than doubled.1 And November hasn’t been much better, with some stock indexes approaching double-digit losses for the year as we enter December.2 This behavior serves as yet another reminder that equity markets are often volatile and can go down just as easily as they can go up. Given this recent and vivid demonstration, I believe investors (and their portfolios) should consider the potential benefits of allocating to alternatives.

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Could December be the start of a ‘Santa Pause’ rally for stocks?

The Federal Reserve’s tone has become more dovish, while the US and China have made progress on trade

Time to read: 6 min

When I was in high school, I worked as a lifeguard. I loved the job, but I was always aware of the enormous responsibility that came with it. I found the key to success was to anticipate trouble before it happened — to watch swimmers for any early signs of distress before they ever came close to drowning. Today, I see similarities between lifeguards and policymakers such as the US Federal Reserve (Fed), which must try to anticipate economic downturns before they start. For the last several weeks, I have written in my blog that signs of a global slowdown are starting to appear. The good news is that policymakers appear to be reacting to those early signs — which I believe could help spur a “Santa Pause” rally for markets.

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Are you getting enough diversification from your alternatives allocation?

Our research shows that most portfolios aren’t maximizing the diversification potential of alternatives

Time to read: 4 min

Alternative investments are considered a hallmark of portfolio diversification and can help reduce overall portfolio risk, but only when the appropriate strategies are being implemented properly. Over the past year, the Invesco Global Solutions team examined hundreds of financial advisor portfolios, and we discovered that a common source of hidden risk is unintended equity exposure within alternative allocations, which can have an adverse effect on portfolio performance during equity market downturns. Fortunately, there are solutions that can potentially mitigate this risk and help investors achieve desired results.

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Central banks to the rescue? Don’t count on it.

Weekly Market Compass: Economic data has been worsening, but there may be holes in the traditional central bank ‘safety net’

Time to read: 5 min

Stocks continued to slide last week, and most major indices are negative for the year-to-date period — some having posted double-digit losses. As I noted in my commentary last week, there are hints of an economic slowdown appearing. In this environment, expectations are increasing that central banks may loosen their monetary policy in response, but I’m not sure that central banks will come to the rescue this time. In fact, I believe central banks are more likely to be a risk factor going forward.

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Amid concerns of a global slowdown, Fed looks likely to act

Weekly Market Compass: Monitoring geopolitical developments, eurozone inflation and a potential US government shutdown

Time to read: 4 min

This past weekend, I had the opportunity to see a production of Macbeth. Though I’ve heard the words many times before, I was particularly fixated on the witches’ verses: “By the pricking of my thumbs, something wicked this way comes.” The pricking of thumbs was originally intended to represent the historic belief that people could sense when evil was approaching. However, I couldn’t help but think this was a timely analogy for the sensations some market participants are feeling that an economic slowdown is approaching.

We heard last week from Fed Chair Jay Powell, who noted he is seeing “concerning” signs of a global slowdown.

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Factor use is growing among financial advisors and institutional investors

Our new global study examines trends in factor investing around the world

Time to read: 2 min

Factor investing is growing rapidly — not only are more investors adopting factor strategies, but as investors gain experience, they increase their use of them. This is one of the key findings from our recent Global Factor Investing Study, which is based on face-to-face interviews and discussions with more than 300 institutional and wholesale factor investors around the world — including financial advisors, pension funds, private banks and insurance companies.

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A preferred approach to US REIT investments

Making the case for US REIT preferred stock in flexible real estate portfolios

Time to read: 5 min

When investors seek to take advantage of publicly listed real estate opportunities, they often favor traditional REIT common stock to gain exposure. This makes sense — from Oct. 1, 2008 through Sept. 30, 2018, US REIT common stock has provided attractive returns coupled with income generation, potential diversification benefits and a potential hedge against inflation.1 However, we believe US REIT preferred stock may offer a unique opportunity for investors to access real estate-like returns with even higher income (and lower volatility) versus traditional REIT common stock.

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