Macroeconomic Environment; What will thwart the “Goldilocks” environment?
“Not too hot, not too cold, but just right.” This Goldilocks sentiment, fueled by years of central bank accommodation and tepid economic growth has kept volatility at multi-decade lows, interest rates range-bound, and propelled domestic stock markets to new highs. Even persistent political drama and geopolitical headwinds have failed to create sufficient investor angst to unglue equity market rally. That said, it is safe to say that many investors are nervous as by many measures US equity markets appear stretched. In the second quarter, the S&P 500 Index hit a record high, fueled by technology stocks, non-US equities outperformed domestic, and within bonds corporate credit and emerging markets debt posted the strongest returns as the “risk-on” theme continued. The Treasury yield curve flattened, with short rates up and longer rates falling, but the broad bond market returned roughly 1.4%.