U.S. equity markets marched to their highest levels in more than five years on renewed optimism following last week's short-term resolution to the "fiscal cliff."
-John Toohey, vice president, equity investments, USAA
- U.S. equity markets marched to their highest levels in more than five years following the short-term resolution of the “fiscal cliff.” At the macro level, investors have shifted their attention to the upcoming debate regarding the debt ceiling and the USAA team expects turbulence in the markets leading up to the debt ceiling.
- The USAA team sees one metric that causes some concern – the complacency among investors. The VIX is now settling near three-year lows and as seen over the last few years, the volatility can resurface suddenly and often lead to sharp market declines.
- As a result, the team is cautious on U.S. equities and hold an underweight position in U.S. stocks and instead favor non-U.S. equities, including emerging markets. In addition, they hold a higher-than-normal allocation in fixed-income securities as a defensive position.
- Japan continues to make headlines as the Japanese government announces a stimulus plan centered on bolstering government spending to spur further economic growth. Global equity markets closed higher last week and Treasury bonds rose slightly. Other economic data was mixed and continues to indicate a modest recovery with slow growth.