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rises, and this relationship has been getting stronger in recent years. An increase in volatility also typically results in selling by systematic investors, as many of these strategies effectively embed a 'stop-loss.'
He continued:"And both political and economic polarization have a strong geographic dimension. On the economic side, some parts of America, mainly big coastal cities, have been getting much richer, but other parts have been left behind. On the political side, the thriving regions by and large voted for Hillary Clinton, while the lagging regions voted for Donald Trump.
To achieve a cleaner comparison, we look at the standardized level of both the China and US manufacturing PMI. The two series trend closely, showing the linkage between the two economics. A lack of transparency around these unilateral policy decisions by executive administrations is likely to cause more frequent market volatility, as we saw towards the tail end of last year. The increase in economic policy uncertainty presents both opportunities and risks for investors: from the U.S.-China trade dispute to European populist upheaval to
Legislative battles over the budget, trade issues, the debt ceiling, and investigations into the Trump administration will undermine confidence present a headwind for markets throughout 2019.""The credit cycle leads the economic cycle and the chart below shows that delinquency rates on consumer loans bottomed in 2017. The key question for investors across all markets is when the ongoing rise in delinquency rates will become a macro problem.
"Keynes stated that animal spirits are one of the key factors behind fluctuations in the economy and changes in the business cycle. Therefore, a quantitative measure of animal spirits may lead to a more accurate estimation of the potential effect that a change in animal spirits has on the economy. Staying the course with risky assets allows for recovery of lost value and helps earn the higher expected returns with time, which does not happen for investors who exit the market.""The continuing narrative from Q4 2018 of synchronized global slowdown driven by trade conflict, fading US fiscal tailwinds and Chinese deleveraging is helping emerging markets local currency debt more than either US or EM equities.
By contrast, significant losses have been quite rare. In fact, all of the double-digit losses throughout this period occurred during 2002, which was characterized by uncertainty still surrounding the continued Tech bubble unwind, as well as the 9/11 aftermath. Furthermore, we also found that gains in excess of 30% have been more common than significant losses. Therefore, we view recent levels in this indicator as a positive signal for market performance in the coming months.
"Although they've clearly gotten less concerned about hikes, equity investors continued to express concern about quantitative tightening in January. The WSJ also reported in January that the Fed was considering ending its balance sheet unwinder earlier than originally expected. And so we've spent some time revisiting how quantitative easing impacted the equity market.
But second, despite the strong cyclical increase in demand for labor, the number of Americans of prime working age is shrinking as the Baby Boomers age into retirement. That's clearly visible on the graph above. The darker line shows that LFP among prime age workers is up to 82.6% from a low of 80.6% in 2015. But the overall LFP — the lighter blue line — has increased by much less over the same period due to demographic trends.
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