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In keeping with Unigestion’s policy of sharing and discussing ideas with others in the industry to generate debate and innovation in asset management, we make available our thoughts on key investment themes and markets through our Special Reports, Perspectives and Research Papers. Subscribe now to receive our latest updates:

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Special report

Inflationary Pressures Have Continued to Ease

Recent global central bank meetings have revealed a common message: a weaker economic outlook and lower inflationary pressures justify a pause in the monetary policy normalisation process. In fact, our proprietary inflation Nowcaster for the US turned negative for the first time since 2017. Inflation expectations have remained steady, in the case of survey-based measures, or declined, in the case of market-based measures. For now, inflation seems to be the least of the Fed’s concerns and the FOMC’s more dovish stance is consistent with our own indicators: inflation no longer seems to be an issue.

Special report

Average Outperformance of Stocks in the S&P 500

Looking at the price movement of the firms in the S&P 500 index that have reported their 4Q 2018 results thus far (235 of 500, or about 60% of the S&P 500 market capitalization), we see investors clearly rewarding those firms beating their expectations. Even those firms missing their expectations have not been too harshly penalized. This asymmetry in relative performance between those firms beating vs missing expectations is in stark contrast to the last reporting season. During the 3Q 2018 reporting season, the opposite was true with the underperformance of firms missing their expectations much larger than the outperformance of firms beating their expectations, all in spite of one of the strongest reporting seasons on record (EPS growth was above 24% for the S&P 500 overall). We believe the asymmetry today is largely the product of lighter positioning, as well as the US Federal Reserve making clear they will be patient with further monetary policy tightening.

Special report

Swing in S&P 500 Index from December to January

After a terrible end of the year for risky assets, January has seen a sharp reversal with many assets recouping their December 2018 losses. In the case of the S&P 500 index, the swing in prices (i.e., the difference between January and December price returns) is the largest historically. A combination of factors have driven the rally, including a dovish pivot by the Fed, progress on US-China trade talks, a positive earnings season thus far, and a recovery from oversold levels. While our short-term view at the beginning of the year was positive for growth assets, our medium-term view remains more cautious as many of the fundamental risks have not dissipated.

Special report

Change in FX vs USD Pre- and Post-Fed Announcement

Market expectations going into the FOMC meeting yesterday were anchored around a neutral to slightly dovish policy stance. But the removal of references to gradual rate increases, as well as indications that balance sheet reduction may be adjusted, took the market by surprise and risky assets broadly rallied. In this context of less restrictive US monetary policy and a risk-on sentiment, investors across the board sold US dollars, with the DXY index down and other currencies up between 0.3% and 1.6% against the USD. With one of the key supports to the greenback stepping back, will we see further dollar downside ahead?

Special report

Average Future Monthly Returns at Current Valuations

By examining a broad spectrum of valuation measures (including both backward-looking and forward-looking ones) and placing current levels in their historical context, we see that valuations are broadly around their historical averages. The S&P 500 is certainly an outlier, but its valuation is still not extreme. If we further consider the future average monthly return over expanding windows, we see that the historical return over the short-term is attractive, but the picture for longer holding periods is more mixed as returns past the first month turn less positive.