Political uncertainty is at its highs, but volatility measures suggest that equity markets don't care.
Over the weekend, the meeting of G20 finance ministers could not agree on previous wording to "resist all forms of protectionism" (largely based on the position taken by the US) for their communique. For the global economy, this was not a step forward.
Consumer confidence has been rising (at or close to pre-recession highs), according to recent data and as we all know, the consumer is about 2/3 of the US economy.
At the same time, indications of Q1 GDP are suggesting that growth is not following the consumer's confidence higher (at the moment only a rate of growth of 0.9% is anticipated). Consumers have not yet translated confidence into spending.
The US Fed is confident because they are raising interest rates.
But the yield curve is flattening. Historically, a flat yield curve has been a good indicator of recession to follow, but at the moment we are not there, yet.
Equity valuations are fully anticipating the benefits of US tax reduction and infrastructure spending although the health care issue (repeal of Obamacare and implementation of a new American Health Care Act) has stalled the process.
Investors have become used to shrugging off the "shocks", preferring to stay with the growing risk in their portfolios.
But risk is growing (despite what has been a muted reaction to it). In fact, it has been growing steadily since investors decided to jump into the "Trump Rally".
Our job as portfolio managers is to assess the investing environment and prepare our client portfolios for the impact when investors decide that they no longer like the risk that they have.
That means looking behind the headlines and into the emotion that is driving investor sentiment:
When portfolio values are rising, wealth and risk management are low on the scale of family priorities. Oddly, that is when it should be the highest (because risk is high and rising).
So we (at High Rock) are standing watch for our client families, making sure that their financial futures are not put in jeopardy.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist