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Q&As and Interviews
Shauna O'Brien Oct 30, 2014
Only the big cap stocks have been resilient. The Russell 2000 has been a poor performer for most of the year and has been the initial sign that the end of QE has made investors more sensitive to valuation and risk. Over the past month, the small cap weakness has spilled over into the mid cap stocks and has begun to infect the larger companies. I don’t think it is coincidence that it is happening just as QE is about to end.
What is your current forecast for interest rates as far as the 10-year Treasury rate is concerned?
As I expect further weakness in equities, I think the US bond market has one rally left in it coincident with the stock market selloff that I foresee. After that, yields will resume higher with a 10 yr yield of 4% by the end of 2015.
Housing has been quite erratic from a data perspective. Would you consider yourself more of a housing bull or bear based on your firm’s research?
The housing recovery will continue, but in fits and starts and there will be a lethargy still to the recovery as long as the first time home buyer is more enticed to rent. In order to see a quicker recovery, home price growth must slow to something more in line with income growth, so buying can be more attractive than renting. After bubbles burst, it takes many years to some sort of normalization.
Looking ahead to 2015, what are going to be the biggest market indicators that investors should be paying attention to?
Because central banks around the world have so injected themselves into the marketplace, watching what they do will remain the most important thing an investor, with a shorter term time horizon, can do. The Fed of course is the most important to watch and see when and how they start raising short term interest rates. Markets have had a tremendous run over the past few years and have thus pulled forward a lot of future returns. And, 2015 will close the 6th year of the current bull market in March and that is very extended, historically speaking.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.
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Money Market Funds