Equities take SILVER (by a swimmer’s milli-second).
US Equities edge back up to the #2 (Silver!) position on the Asset Scale. Since no ties are given in the Olympics, we’ll have to say Bonds take the Bronze or the #3 position with a very close margin to US Stocks. Bonds have enjoyed both Gold and Silver positions for over a year now since International equities fell from grace back in July of 2015.
The tie is not necessarily the result of deterioration of Bond performance, but rather it came from an improvement in strength across Domestic Equities as well as International Equities. So while Domestic Equities have an ever slight margin over Fixed Income in the Asset Scale, fact that they remain close in rank means we will honor Stocks Silver medal, but we will not be making any major allocation shifts at this time until the shift is confirmed in the coming days or weeks. With these developments in mind, I thought I would review the Asset Scale ranking, highlight some recent changes, and offer what themes we may see “emerge”– pun intended, for the remainder of the year.
So how has Fixed Income/Bonds been losing traction on the Asset Scale? The reason is simple. Fixed Income has been losing relative strength to a handful of asset classes, particularly US and International Equities.
Bonds also lost some traction against International Equities, specifically Emerging Markets. Refresher: this “losing traction” is purely based on price performance, on a relative basis. So, while Bonds continue to perform well– what we’ve seen is that US Stocks and International Stocks, recently have performed better, causing this close but meaningful shift.
Takeaway: This is a slight glimmer of positivity for US Stocks, makes us all feel a great bit better about owning stocks in these volatile time, more so this movement signals a bigger ray of sunshine for International and Emerging Markets.
While International equities remain at the last spot on the Asset Scale, they have much room for improvement AKA, market upside. Bonds having slid to #3 at the expense of improved International performance tells me that International holdings may find their way back into your allocations, soon– the risk-reward scenario, in other words, is improving for the International space, so expect to see us dip our toe into International waters before year’s end.