Blackstone is pleased to offer the following Market Commentary by Byron Wien which shares his thinking on global economic developments, market insights and other factors that may influence investment opportunities and strategies.
Many investors think that this bull market and economic expansion have gone on long enough and a bear market and a recession will take place soon. In my view, we have at least a year or two before the next major downturn in either the market or the economy, barring a major geopolitical conflict such as a shooting war with North Korea, Russia or Iran.
There could always be an exogenous event like military conflict with North Korea, strife in the Middle East that cuts off oil flow or Russian aggression in the Baltics that unsettles markets. The market is assuming none of that will happen, and if the market is right, we have at least one to two years to go before we get into serious trouble. My overall conclusion is that there are significant investment opportunities outside the United States and many portfolio managers are under-weighted globally.
In my conversations with institutional investors I find a surprising lack of optimism about the outlook for equities. The capitalization-weighted Standard & Poor’s 500 was up over 11% year-to-date, excluding dividends, on September 18. Some would argue that only a few stocks are accounting for the rise, but the equal-weighted S&P 500 was up over 8% year-to-date as well.
Every year in August I organize four lunches for serious investors on successive Fridays in eastern Long Island. There are different groups of 25—30 people at each one and many of the great names of the hedge fund, real estate and private equity world attend, along with some academics and government folk.
I continue to believe that the two most important issues receiving inadequate investor attention are productivity and the role of central bank liquidity in the performance of financial markets. Productivity is critical to both earnings improvement and a rising standard of living.
The mood among investors in Europe is generally positive in spite of mixed cyclical and secular factors influencing the economies and the markets there. The cyclical forces are dominated by a better business tone across the continent.
At the beginning of the year, most market strategists were in agreement that interest rates were going to rise in 2017. The reasons varied: some saw inflation climbing, pushing yields higher; others worried about bigger budget deficits; a few blamed the Federal Reserve, which was thought to be planning to raise short-term interest rates two or three times and shrink its balance sheet. Whatever the reason, interest rates were expected to head higher, so seeing the 10-year U.S. Treasury yield here at 2.3% is a surprise.
Donald Trump swept into office on a populist wave. His promise of greater growth for the United States economy resonated with a large part of those disappointed with stagnant wages and a lack of opportunity. He said he would bring manufacturing jobs back and provide better healthcare coverage at a lower cost.