25 Oct 2013

Amid mixed economic data, budget and geopolitical risks have spiked higher, threatening the outlook. The fragile recovery continues to rely on Fed policy. Consider international equities, but bond risks are rising (though munis offer more value now). We offer answers to the following questions:

  • How will the U.S. budget battle and debt ceiling crisis play out for investors?
    We believe Congress and the President will come to an agreement to raise the debt ceiling, but if they fail to do so, it would have dire economic and financial market consequences.
  • How much should investors worry about the situation in Europe and ongoing mid-east turmoil?
    While the focus is now on events in Washington, the underlying risks in Europe and the Middle East have not gone away.
  • The Fed delayed tapering its bond buying policy in September. Why, and what’s next?
    The Fed now faces a Catch-22 of how to communicate its intent to taper without causing rates to rise again.
  • Economic data in the U.S. are decidedly mixed: What is the outlook for the recovery?
    The recovery is real, but fragile. We expect the U.S. economy to continue on its path of slow growth.
  • What can we expect from emerging markets?
    We like emerging markets for the long term and think that recent underperformance creates opportunities.
  • Is Europe finally on the path to recovery? What are the opportunities?
    Europe looks better than a year ago, although significant long-term structural challenges remain.
  • Should investors favor U.S. or other developed markets? What sectors do you favor?
    With U.S. stocks expensive and signs of improved conditions abroad, investors should consider increasing exposure to the non-U.S. markets. Within the U.S., we continue to prefer energy, technology and mega caps.
  • Many moving parts: Where are the opportunities in fixed income?
    Fixed income credit sectors should do well but their long-run results will be challenged if and when the Fed decides to exit its QE program.
  • What is the outlook for municipal bonds?
    The backdrop is likely to remain challenging, but the summertime correction restored value.
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