Dynasty Private Wealth

Market Moves

May 5, 2017

The global economy is growing slowly but positively. The primary risks remain geo-political (e.g., the French elections or North Korea). It is always difficult to handicap Donald Trump and his agenda (and both supporters and detractors have been wildly wrong about his success at different times), but recent movement on healthcare reform and anticipation about future tax reform will be positively received by the markets.

On the investment side we maintain our general market forecast, with no major changes:

  • The global macro-economic environment remains fairly benign but somewhat fragile — geopolitical and “exogenous” events are still the largest threats
  • Although Trump’s legislative agenda will take longer to implement than many thought, we may be beginning to see some progress. The Democrats will universally oppose him (except perhaps on infrastructure spending), so the question will be whether or not the Republicans can maintain some level of party unity — not a sure thing
  • The UK, European, and Japanese central banks will remain accommodative — driving increased policy divergence with US, which looks as though it will raise rates in June. Given the improved economic environment in Europe, there are some rumblings that the ECB should begin to consider tapering off its QE policies
  • Despite an uptick in economic data and earnings, US public equities still look expensive to us. We remain modestly constructive for the year, though valuations in EAFE and EM stocks are much more attractive. The USD trend is the wild card for US investors (it is currently strengthening in anticipation of a June rate hike)
  • We expect a “grind higher” interest rate environment, and the public credit markets still look very expensive to us. We do not expect the US yield curve to continue to flatten, unless future economic data come in worse than expected
  • We think there are better opportunities in the private equity and private credit spaces for investors who can access them
  • It is shaping up to be a better year for alternative investments, but we remain more optimistic about hedge funds than liquid alternatives because of less liquidity and leverage constraints
  • Real assets and commodities have been a disappointment this year, as falling oil prices have dragged down the whole complex. We remain generally constructive due to improving economic conditions, but are now less optimistic about the space than we were earlier in the year

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