Eaton Vance on the Markets

Our timely perspectives on the key global economic forces and the long-term investment strategies to consider.

This Just In: Making sense of recent volatility

October 10, 2014; Eric Stein, Co-Director of the Global Income Group | Eddie Perkin, Chief Equity Investment Officer

After an extended reprieve earlier this year, market volatility is back – at least for the time being. Eric Stein and Eddie Perkin shared some thoughts on the various cross-currents that have been roiling the market lately.

Eddie Perkin

  • By way of context, it should be noted that the low volatility in the market over this past summer was artificial and could not be expected to last indefinitely.
  • The theme of the day is divergent economic fortunes (i.e., U.S. improving, Europe weakening) have led to divergent monetary policy regimes (i.e., tightening in the U.S., easing in Europe).
  • The market has whipsawed daily as that theme is reinforced or undermined. For example, any hint from the Fed that rate hikes may come sooner than expected boosts the dollar but pressures stocks.
  • Against this backdrop, many domestically-oriented assets (excluding U.S. small-cap stocks) have benefited, while exporters along with oil and other commodities have generally struggled.
  • The recent weakness in small-cap stocks is likely traceable to increased tax-loss selling by many small-cap mutual funds ahead of their fiscal year-end on October 31.
  • On top of all that, corporate earnings season is now upon us, and the November midterm election is approaching. So, market volatility may persist over the coming weeks.

Eric Stein

  • Recent evidence indicates that global economic growth has been slowing and inflation expectations falling. Most notably, very weak growth and mounting deflation fears are prevalent in the Eurozone.
  • Even Germany, Europe’s stalwart economy, has shown signs of weakness – getting “dragged down,” so to speak, with the rest of Europe.
  • Economic growth in China, the world’s second-largest economy after the U.S., has continued to slow as well.
  • U.S. growth is stronger and has been powering the global economy, but uncertainty regarding U.S. Federal Reserve (Fed) policy has contributed to recent market gyrations.
  • With world economies moving in different directions (particularly the U.S. leading and Europe lagging) and global central-bank policies diverging, it is no surprise that we have seen an uptick in volatility in the fourth quarter.
  • In addition, ongoing geopolitical risks – the Ukraine/Russia crisis, the ISIS threat and Ebola outbreaks – have been another source of market volatility.

The views and opinions expressed by the authors are their own as of the date indicated, and do not necessarily represent the views of Eaton Vance. Any such views are subject to change at any time based on market or other conditions and Eaton Vance disclaims any responsibility to update such views.

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Market Insights

Market Insights

The Big Dig economy: another fine mess

Thomas Shively, October 2014

The following Insight, drafted prior to the recent spike in market volatility, is an update on Thomas Shively's cautious view of the economic backdrop here and abroad.

Get Full Article

Management by the dots signals tightening cycle

Payson Swaffield, October 2014

This October marks a milestone for the credit markets, the end of Quantitative Easing. As the Federal Reserve’s focus shifts to more traditional monetary policy, they’re using a new “dots” chart format.

Learn More

How’s the market feeling these days?

Edward J. Perkin, October 2014

As of September 30, 2014, the S&P 500 was up more than 200% from its bear market low on March 9, 2009 – marking one of the longest bull runs since 1930. Meanwhile, volatility (muted for most of this year) has picked up recently.

Learn More

Confronting the tax drag

Tom Metzold, Jim Evans, Lew Piantedosi, Peter Crowley; August 2014

The 2014 tax season brought home the unwelcome reality of higher taxes, particularly for high-income earners who bore the brunt of the tax increases. While people immediately saw the impact on their income, the effects higher taxes can have on investment returns is not as well recognized. People may know about using retirement plans, such as IRAs and 401(k)s, to manage the taxes on their investment returns, but they are often not familiar with a variety of other approaches that could help reduce their tax burden.

Learn More

Solving the Income Puzzle

Christopher Remington, Michael Cirami, Kathleen Gaffney, and Scott Page; July 2014

With interest rates at near historic lows, investors are starved for income. Government bonds and high-grade corporates have generally been the core of investors’ income portfolios, but yields on these bonds are minimal. Delivering a potential double whammy for investors, the prospect of rising interest rates could bring principal losses because the prices of bonds in these core sectors are highly sensitive to changes in interest rates. Diversifying into nontraditional income sectors may provide investors with greater income and lessen their exposure to interest-rate risk.

Learn More

Are you managing volatility?...or is it managing you?

Tim Atwill, Richard Bernstein, Eric Stein, Chris Sunderland, Brad Godfrey; September 2014

Research shows investors’ personal returns fall short of the equity markets’ actual returns because investors too often make the mistake of buying high and selling low. But there are several strategies investors and their advisors can draw on to take a more disciplined approach to investing.

Learn More
 

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