- End of Year MLP Update: Positive Outlook
December 20, 2016
- Income Investing in an Uncertain World | Part 1
October 11, 2016
September 2, 2016
- Remember Brexit?
August 1, 2016
- The Exit
July 1, 2016
This quarter has been a whirlwind for the energy space. Among the notable events were the surprise presidential election of Donald Trump and the agreement to cut oil production by the Organization of the Petroleum Exporting Countries (OPEC), both of which have been positive for global energy markets thus far. The Salient MLP team believes that these key events may continue to bolster the energy recovery into 2017.
As the recession of 2008/2009 wound down, many investors began to survey the wreckage of the financial markets and shift their attention from asset preservation to capital appreciation. Traditional fixed rate bonds, particularly sovereign bonds such as U.S. Treasurys, appeared to be grossly overvalued thanks to aggressive monetary stimulus from nearly every central bank.
Earlier in my career, one of the more frequently asked questions I regularly received was, “What keeps you up at night?” I can’t recall the last time someone asked me that question. The inquiry was intended to identify investment blindsides—those things that lie in the periphery of one’s own psyche. Blindsides represent the weaknesses in our core investment theses or those scenarios that lie outside our expectations. I think the reason people have quit asking is that they either don’t care or don’t think it matters.
On the heels of the Brexit referendum, risky assets continued to perform well over the course of July. Large cap U.S. stocks (S&P 500 Index) rose 3.7%, small cap U.S. stocks (Russell 2000 Index) rose 6% and emerging market shares (MSCI Emerging Market Index) rose 5.1%. The option-adjusted credit spreads on high yield bonds (Barclays High Yield Index) contracted 54 basis points to 5.4%, generating a 2.7% total return for the month and finishing at the tightest level since September 2015.
On Thursday, June 23, the United Kingdom (U.K.) held a referendum that culminated in a 52% to 48% decision to leave the European Union (EU). Immediately following the decision, U.K. Prime Minister David Cameron announced his resignation. Market volatility climbed significantly in the aftermath as most asset classes initially retreated then regained most of their losses over the course of the following week.
It was an eventful end to the week, nowhere more so than in the United Kingdom, where voters surprised markets, political observers and even bookies with a resounding vote to leave the European Union. We know many our clients and partners have questions about how this may affect the world, financial markets and their investments. As always, the answer is complicated.
During a speech at Harvard University on Friday, May 27, Janet Yellen indicated that the Federal Reserve (Fed) could hike short-term interest rates sooner rather than later. The Fed chair cited continued improvement in the economy as support “to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate.”
As discussed in the last two House View installments, February 11 marked an important shift in investor behavior. The general sentiment from the beginning of the year through February 11 could be described as cautious despair. Since that time, many investors seem to have shifted to a mode of optimism that has supported more risk-taking behavior as evidenced by the recent positive performance of speculative grade bonds and global equities.
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