Short-term bonds – and short-term bond funds – may grow more attractive due to their ability to earn incremental income above cash and cash-like investments without much exposure to the risk of rising rates. Slow and steady interest rate increases stand to benefit short-term Treasuries and corporates, and it seems unlikely that the Fed will quicken its pace on rates any time soon.
While the physical effects of the back-to-back storms will certainly pose a challenge to municipalities, a major impact on the muni market is not anticipated due to the speedy federal response to the natural disasters as Washington is proving to be a willing partner in the recovery effort. There will still be ample demand for munis even if tax rates drop.
We are currently facing manmade and natural events that have the potential to disrupt markets: hurricanes, a potential government shut down, an impending deadline to raise the federal debt ceiling, and North Korea’s escalating nuclear threat to its Asian neighbors. Given that September is typically the worst-performing month of the year, it makes sense for investors to be cautious about their risk exposure.
North Korea might be generating scary front-page headlines, but it poses little real threat to markets or the world. In other news, emerging market stocks have been top-notch performers in 2017, and over the long term, they will continue to present an appealing investment opportunity. EM earnings growth is predicted to rise faster over the next two years than DMs, suggesting that EMs may be earlier in the economic cycle. EM investors should always be aware that even a pleasant ride upward will likely include some bumps along the way.
There is some expectation for the ECB president to use this week’s Jackson Hole gathering to signal an end or at least a slowdown to the eurozone’s QE program, despite the lack of need to rush. Manufacturing is doing better than it has in years, and is contributing to a corporate earnings growth forecast exceeding 20% for full-year 2017. However, the eurozone is dealing with low inflation and high unemployment rates. GDP growth is accelerating, but slowly. Reduced QE could also further strengthen a euro that’s already appreciated 12% so far this year.