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3Q 2018 Investment Commentary from Cornerstone Management
While short-term rates continue to rise on Fed rate hikes, the longer end of the curve has drifted higher as well. Overtightening is quite likely due to the tightening effects of the Fed’s attempts to normalize its balance sheet exacerbating the impact of the hiking cycle. The outlook for fixed income securities both domestic and global is tenuous at best.
Equity returns were generally positive in the third quarter with the U.S. continuing to lead global markets. Developed and emerging international market equities struggled with the MSCI Emerging Markets Index down nearly 8% through the third quarter. The rising dollar has continued to pressure international returns.
From a macroeconomic standpoint, the U.S. continues to fire on all cylinders. The jobless rate is at an extremely low level. Inflation is not a primary concern at this point, and we believe there are a number of global structural factors that will act as an “inflationary brake.” We continue to believe that 2018 should end relatively well from an equity standpoint.
We remain increasingly cautious about the future. The credit cycle should be the real concern of investors. Debt has risen significantly on corporate balance sheets, on the balance sheets of emerging market countries, and on the balance sheet of the U.S. itself. With interest rates rising, the cost of servicing this debt becomes a more significant challenge.
About the Author
Bryan C. Taylor has over 20 years of experience in portfolio management and design. He is a Cornerstone Principal and currently serves as Chief Investment Officer and Chief Executive Officer at Cornerstone Management, where he oversees all operations and is Chairman of the Cornerstone Investment Committee.
