Permanent Value

Week in Review 01/24/2017

Bruce Doole
January 24th, 2017

The Power of Income in Our Current Environment

What does today’s market environment mean for income investors?
Income remains a challenge. While the prospect of higher rates is positive for yield-starved income investors, against this backdrop the price of fixed income and many yield-oriented equity sectors tend to suffer. This changes the challenge for income investors primarily from finding yield to managing the balance of risk, yield, and total return.

What are the most important economic themes being reflected in the moment?
The US remains the driver of global economic growth. Emerging markets had a strong run this year until the US election result. Although a more hawkish Federal Reserve (Fed) and a stronger US dollar could be headwinds for the asset class next year.

Where are attractive opportunities?
Despite the potential for continued rising rates, fixed income remains an important allocation in both an income and multi-asset portfolio. Government bonds and core fixed income offer very little protection against rising rates, which is why fixed income exposure is much more focused on credit.

Source: J.P. Morgan Asset Management

THIS WEEK’S ECONOMIC DATA:

  • Great Britain CPI increased 0.5%, well above the expected 0.3% for the month.
  • U.S. CPI rose 0.3% in December, lifting the year-on-year rate to 2.1%.
  • U.S. Industrial Production surged 0.8% in December, led by a large increase in utility output.

Source: Ivy Weekly