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It’s hard to have a recession when earnings and equity returns are improving. We see potential opportunities in U.S. value stocks as well as international and emerging markets. The U.S. stock market is up more than 16%, international developed markets are up more than 20% and emerging markets are up over 30%.

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The same catalysts driving the U.S. stock market are supporting high-yield bonds. High-yield spreads are tight, but we don’t see a looming reason for them to start widening given current economic growth trends. Demand is picking up for oil-field service providers as the oil price rises, and while contracts with oil producers are less lucrative, the service providers have cut costs and become more efficient operators.

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We currently see the best value opportunities in emerging markets. Our focus is on value (fundamentally cheaper assets) and momentum (well-performing stocks). “Smart beta” refers to a method of passive investing that considers a range of stock “factors” that over time have been successful in reducing risk and/or enhancing returns.

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Some commodities and commodity stocks are enjoying a brisk tailwind while others face stiffening headwinds. Oil’s supply-and-demand mismatch is easing, while a strengthening dollar is a concern. The prospect of higher U.S. interest rates and possible tax reform has taken a toll on precious metals, but global growth is proving a more powerful force. An upswing in Chinese demand for materials has fueled the rally, which has also lifted mining company shares.

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The Federal Reserve controls interest rates at very short maturities, but the market determines rates at the longer end of the curve. Strong market demand for long-dated Treasuries has pushed their yields lower than they were when the Fed started hiking in December 2015. So far this year, the 30-year Treasury has been among the best-performing fixed income assets.

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