Viewpoints
Introducing "EV Forward"

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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      Boston - At Eaton Vance, we're always looking ahead for our forward-thinking investors. EV Forward (see link below) gives our investment managers the opportunity to present their latest observations on the economy, credit and equity markets.

      What started as a reaction to a rate cut by the U.S. Federal Reserve (Fed) on July 31 - and disappointment that the Fed's guidance for further easing was less than the markets wanted - turned into a global market retreat on August 5. President Trump's tariff announcements and moves in CNY (Chinese yuan) rekindled fears of a trade and currency war.

      What next for the Fed?

      Since then, global markets may have steadied, but the geopolitical and macroeconomic vulnerabilities remain palpable. Given Fed Chair Powell's focus on trade tensions during the press conference after the July meeting, we believe the Fed may be forced into a more dovish mode at the next meeting in September. According to trading in the federal funds futures market, expectations for two more rate cuts in 2019 have risen this week.

      What now for investors?

      From our perspective, markets may be overestimating how effective monetary policy can be when unemployment is already at record lows and inflation remains subdued. Rate cuts by the Fed and other central banks - including India, New Zealand and Thailand on August 7 - may not stimulate the global economy enough to avert a downturn. While we would be cautious over the next 6-12 months about adding to portfolio positions in certain risk assets (below investment grade) at current valuations, we do think a focus on security selection in the credit markets could add value.

      Lower interest rates have tended to support higher valuation multiples across the equity markets. And if monetary easing does stave off a recession, that situation has historically favored equities - particularly large caps over small caps and growth over value. Regardless of monetary policy, our view is that secular growers - stocks of companies benefiting from disruptive long-term trends - would be more likely to outperform.

      Bottom line: In an environment of political and economic uncertainty, we believe that our focus on credit and equity market research - and active security selection aimed at balancing risk and return - can help to add value.