Central banks take center stage

Weekly Market Compass: Many major banks are tightening, but trade threatens to disrupt economic progress

Time to read: 7 min

Central banks took center stage last week, with a trifecta of major central bank meetings. The clear theme was that most major banks are at least taking small steps toward monetary policy normalization. However, the central banks that are tightening may be caught by surprise if the trade situation worsens — which I believe is a strong possibility.

The Federal Reserve indicates another rate increase for 2018

First came the US Federal Reserve (the Fed), which took a


Can alternative investments help in uncertain markets?

Explaining the basics of alternative strategies

Time to read: 2 min

For investors, it’s a whole new ballgame in 2018. Markets have become much more volatile and reactive to economic and political events, leaving investors increasingly concerned about what the future will bring for stocks and bonds. This has led to significant interest in investments that may be able to help cushion portfolios during times of market weakness. In my experience, alternative investments, due to their unique performance characteristics, can serve this purpose.

Given this recent increased interest


European Central Bank plans to wind down quantitative easing

Interest rate hikes to remain on hold for at least a year

Time to read: 2 min

The European Central Bank (ECB) communicated its plan today to wind down its asset purchase program (quantitative easing, or QE) by the end of this year. The ECB announced it would begin a three-month period of “tapering” in October, reducing its bond purchases to 15 billion euros per month from a current level of 30 billion. The ECB said it will continue to reinvest the principal from its holdings for an extended period of time in order to maintain favorable liquidity conditions and ample monetary accommodation. We at Invesco Fixed Income believe this plan should continue to support asset prices and ensure a smooth normalization process.

Interest rates to remain steady


Fed raises rates for the second time this year

Summary of economic projections anticipates improved growth and a lower unemployment rate

James OngTime to read: 2 min

The Federal Reserve (Fed) hiked rates by 0.25% for the second time this year, lifting the range for the federal funds rate to 1.75% to 2.00%. The statement that accompanied the meeting reflected a strengthening of the economy. The Fed also increased the rate of interest on excess reserves by 0.20% with the intent of moving the effective federal funds rate closer to the middle of the band.

The Fed’s summary of economic projections (SEP) showed improvement in its forecast of growth and a lower expected unemployment rate. The most surprising change in the SEP was a


Trade takes center stage as long-term alliances become strained

Weekly Market Compass: Interest rate decisions are also in the spotlight

Time to read: 5 min

I have been talking about the theme of disruption for well over than a year. Last week’s tumultuous G7 meeting, and this week’s key US Federal Reserve (Fed) meeting, illustrate exactly why this topic remains in the forefront of my concerns.

All eyes were on the G7 meeting last week. Some are referring to it as a


Currency outlook: Anticipating US dollar weakness over the long term despite the recent rebound

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar:

Neutral. We expect dollar weakness over the long term as global monetary policy converges toward the current US path and the Fed grows cautious due to softening inflation. As such, it is likely that investors will look for better investment opportunities elsewhere, with the resulting flows out of the US weighing on the dollar. In this environment, we would consider shorting US dollars. In the near term, however, we have moved to neutral as global growth has waned slightly and US growth remains supported by fiscal stimulus.



Interest rate outlook: Volatility in US rates is likely to persist

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min


Neutral. We expect increased Treasury supply to begin pressuring yields higher into year-end though fundamentals are supportive of lower yields. Inflation is likely to begin softening in the second half of 2018, and we believe US growth expectations have peaked. Volatility in US rates is likely to persist near-term as geopolitical concerns (such as in Europe, North Korea and the Chinese trade negotiations) remain in the spotlight. As a result, we are neutral on US rates.



Can small-cap outperformance continue?

Several drivers suggest that small caps may be able to continue their recent dominance over large caps

Nick KalivasTime to read: 3 min

Small caps have materially outperformed large caps in 2018, with the S&P SmallCap 600 Index outpacing the S&P 500 Index 7.80% to 2.58% between Dec. 29, 2017, and May 25, 2018.1 Below, I highlight the drivers of small-cap returns this year, and why I believe the trend could continue.

Tax cuts have benefited small caps. In the three years ending December 2017, the companies in the S&P SmallCap 600 Index had an average effective tax rate 4.3% higher than the S&P 500 Index.1 Investors looking for stocks that may experience improved profitability due to US tax reform have turned to the small-cap sector.

Trade tensions may favor small caps. 2018 has been a year of trade tensions, but


Invesco Global Opportunities Fund has little interest in ‘Big Tech.’ Here’s why.

Rich valuations and the potential for more regulation have led this fund to shun the sector — for now

Time to read: 3 min

It is now three years since we were overweight the information technology (IT) sector and almost two years since we had more than 5% IT exposure in Invesco Global Opportunities Fund. While the performance of “Big Tech” has gone much further than we expected — the sector has dramatically outperformed the broader market since the start of 2013 (see Figure 1) — we believe the future for many of these businesses is more uncertain than most investors anticipate. Below, we outline two main reasons why we have been more hesitant about owning Big Tech stocks in recent times, and offer some perspective on the outlook from here.


Protectionism rears its ugly head again

Weekly Market Compass: New US tariffs may have a long-reaching impact on the global economy

Time to read: 3 min

The global trade environment seriously worsened last week as the US applied aluminum and steel tariffs to Canada, Mexico and the European Union (EU). Just a few days before, US President Donald Trump announced he is exploring tariffs of up to 25% on imported cars. In my view, this is a very negative development that has implications for the global economy for several different reasons