Insights and Publications

Global Market Summaries

• First Quarter 2012 - "Market Overview: Proceed with Caution"
  Excerpt:

  Equity markets rallied strongly in the first quarter of 2012 as the U.S. economy continued to show signs of improvement and fears of a debt crisis in Europe subsided. The S&P 500 Index generated a 12.6% return for the quarter, marking its strongest first quarter since 1998. Over the past six months, the S&P 500 and MSCI AC World Indices have appreciated 25.9% and 20%, respectively. After experiencing two quarters of back-to back double-digit gains, investor sentiment is positive, although it has a cautious tone. Similar to last year, at the macro level, investors continue to perceive a number of structural headwinds - unemployment, inflation, and sovereign debt - that can impede global growth, but unlike last year, global growth expectations now rely more heavily on the U.S. than emerging markets. In emerging markets, tighter monetary policy and declining exports to Europe have reduced growth expectations. While, in the U.S., economists estimate that growth will be approximately 2.5%, an increase over 2011 and a step towards a self-sustaining recovery. At the micro level, investors remain focused on corporate earnings. According to S&P Capital IQ, analysts have lowered their first quarter earnings growth projections to 0.95%, a significant decline from expectations of 4.5% growth in early January. This is the lowest rate of year-over-year growth since the end of the financial crisis. Since their recession lows, earnings per share for constituents of the S&P 500 have grown 95%, even though revenues grew only 1%. Meanwhile, net margins for these firms are more than two standard deviations above their long-term average. The aforementioned fundamental factors all imply that further earnings growth may be difficult for companies, although since analysts’ expectations are so low, there is still room for earnings surprises. As investors reevaluate their expectations for global growth and earnings in light of these macro and micro issues, their cautious sentiment is likely to persist.

• Fourth Quarter 2011 - "Market Overview: Merry-Go-Round"
  Excerpt:

  In an uncertain and deeply troubling era, we take great comfort in the fact that time, with great consistency, marches on. While somewhat artificial, December 31 tends to carry outsized significance as we bid farewell or good riddance to the year just passed. With the misery of 2008 in mind, 2011 will be remembered as a difficult but not disastrous year and one where the pervasive nature of the financial crisis became universally apparent.

  Naturally, this revelation, accompanied by exceptional market volatility, has driven investors to consider their portfolios within the confines of the world we have now been living in for nearly five years. Yet, we continue to believe that the seemingly endless nature of our current problems and the resultant pessimism has created opportunities for those who can look past the perceived certainties of today. This view is both the product of a natural proclivity towards contrarian thinking along with an underlying sense of optimism regarding the very long-term prospects for the world at large.

  We must also acknowledge that the stress of the last few years and the prospect of more difficult days ahead is quite disturbing. Worse still,more than a decade of anemic returns from most high risk assets has created a more serious problem as many endowments have failed, over this period, to generate the returns necessary to preserve their purchasing power1.

  Failure is a powerful word as it implies that which is both final and irreversible. Fortunately, a perpetual time horizon, while daunting in terms of the amount of return that must be earned, is also useful in that neither success nor failure necessarily reflect a permanent condition. As such, the term failure is inappropriate in most cases. Nevertheless, even interim shortfalls are undesirable and we must ask ourselves what they say about the ways in which charitable capital has been invested and about how those who serve as fiduciaries will be perceived...

• Third Quarter 2011 - "Market Overview: Uncertainty"
  Excerpt:

  In the third quarter of 2011, risky assets around the globe declined dramatically as investors’ appetite for risk evaporated. Investors’ uneasiness was fed by a number of uncertainties and ambiguities: mixed macroeconomic data coming out of the U.S. and China, the European debt crisis, and political ineptitude. In August, S&P downgraded the U.S. government’s bond rating for the first time ever, moving it down from AAA to AA+, and investors were left to ponder just how much risk there was to the U.S. "risk-free" rate. Adding another layer to all this uncertainty is the fact that it has been almost two years since the phrase "sovereign debt crisis" entered into the spotlight, yet an ultimate solution still seems elusive. Given all the repeated attempts at ending the crisis, investors seem to have reached a point where they really can’t say for certain when the crisis will end, so they’ve begun to severely discount the odds of a positive outcome. For long-term investors, there are signs of hope: after their dramatic decline, both U.S. and global equities are pricing in a potential recession, and they remain cheap according to relative value measures like P/E and earnings yield.

• Second Quarter 2011 - "Market Overview: Bumps in the Road"
  Excerpt:

  In the second quarter of 2011, equity markets proved to be less resilient than they were in the first quarter, with global equity markets appreciating modestly as investors grappled with new economic releases that showed a slowdown in the pace of the U.S.’s economic recovery. New releases have painted a picture of underwhelming improvements in job growth, GDP growth, and home prices, all of which stand set against the backdrop of the well-documented risks of U.S. and European fiscal policy issues; taken collectively, these factors have served to heighten investors’ levels of uncertainty.