William Riegel, Chief Investment Officer TIAA Public Investments
August 19, 2016
Overseas, Europe’s broad STOXX 600 Index fell 1.7% in local currency terms. Several Eurozone economic data releases were positive, however: French unemployment hit a near four-year low during the second quarter, Eurozone inflation touched an eight-month high in July, and German economic sentiment improved in August. The MSCI Emerging Markets Index posted a modest gain for week through August 18, bringing its year-to-date return to a robust 17.4% (in U.S. dollar terms).
In the U.S., after notching a new record high on August 15, the S&P 500 Index edged lower to finish essentially flat for the second consecutive week. For the year to date through August 19, the index is up about 8.4%.
William Riegel, Chief Investment Officer, TIAA Investments
Current updates to the week’s market results are available here.
Meanwhile, the search for yield continued apace, as new supply for both high-yield and investment-grade corporate debt was met with robust demand. Year to date through August 18, these asset classes have returned 14% and 9.4%, respectively, based on Barclays indexes.
In fixed-income markets, we believe investment-grade corporate bonds, asset-backed securities, and emerging-market (EM) debt currently offer the best risk/reward profiles. At this point, the risk of global deflation should keep a lid on domestic yields, one of the reasons we remain constructive on EM debt, which tends to benefit from lower U.S. rates.
As for the Fed, we expect one interest-rate increase—at most―in 2016, most likely in December. Before the Fed begins a consistent, sequential series of rate hikes, further labor market improvement will be necessary, with stronger wage gains leading to sturdier personal consumption. Additionally, inflation will need to rise to around 2%-2.5% and threaten to move higher.
Foreign stock market returns are stated in U.S. dollars unless noted otherwise.
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