Second Quarter 2011: Economic Outlook
A Sense of Déjà Vu
By: James Solloway, CFA, Managing Director, Senior Portfolio Manager, SEI
If you think you’ve seen this movie before, you’re right. Some of the major issues troubling investors in recent months – Greek debt woes, a general slowing of global economic growth, and a deepening fiscal crisis in Washington – are the same ones that loomed large this time last year. The market reaction to these problems, moreover, has been strikingly similar: Investors have reduced their exposure to equities and other assets perceived as risky, and fled to traditional safe havens, including low-yielding U.S. Treasury securities and German bunds. Equities and commodities have endured a stiff correction, Treasury bond yields fell below 3% before rebounding at quarter’s end and the dollar has bounced off its lows.
The question on every investor’s mind: Will this year’s episode of market weakness and uncertainty end as positively as last year’s, with growth reaccelerating and equity markets posting strong recoveries? We think the answer is “yes” and view declines as buying opportunities. Consequently, we are maintaining our bullish, pro-cyclical position that tilts toward equities and away from fixed-income securities. We continue to emphasize high-yield bonds over investment-grade debt, with an eye toward increasing bullish leanings if equity valuations become more compelling.
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