Market Insights

U.S. Overview 
September 2010
By Markus Schomer, CFA 
Chief Economist

In his 2010 book, “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis,” Anatole Kaletsky, the economics editor of The Times of London, talks about his great faith in e resilience of global capitalism and describes an emerging world that will again generate strong economic growth. In this new world he sees public and private sectors cooperating more smoothly and pragmatically than in the past business cycle. This is, of course, contrary to the “New Normal” that many economists and journalists write about, which predicts a multi-year period of slow growth.

The struggle between a more optimistic outlook a year or two down the road and fears of a renewed recession in the near term seems to be driving investor sentiment these days, and unless you are a trader, you have to pick a side. As frequent readers of this commentary might know, we have never been in the double-dip camp and believe that what we face is a period of slower growth, albeit with rising incomes, savings and employment, and continued expansion in corporate profits.

US financial markets were in a much more constructive mood in July. The S&P 500 was up more than 8%, getting back to even for the year. Interestingly, US small-cap stocks are having a much better year so far. The Russell 2000 did lose ground during May and June, but, including July’s rebound, small-cap stocks are still up about 6% in 2010.

Buoyant stocks usually mean weaker Treasuries, and that was clearly the case in July. Yield on 10-year Treasuries rose back above 3%, but the biggest loser was the long-duration bond, where yields rose more than 20 basis points. US credit markets continued to build on the June rebound, with High Yield and Emerging Markets posting returns in excess of 3%, leaving them up about 8% and 7% for the year, respectively.

Improving risk appetite also caused a further reversion of the recent dollar strength. Both the euro and British pound staged a strong rebound, as the European sovereign credit crisis eased.

Markus Schomer, Global Economic Strategist for PineBridge Investments, is responsible for providing macro-economic forecasts, analysis and commentary for all PineBridge Investments’ groups with a focus on global economic trends and their impact on financial markets. He holds degrees in Economics from the University of Bonn in Germany and the University of East Anglia, in the UK. He also studied at the London School of Economics and is a Chartered Financial Analyst. PineBridge Investments is a group of international companies that provides investment advice and markets asset management products and services to clients around the world. PineBridge Investments is a service mark proprietary to PineBridge Global Investments LLC. Services and products are provided by one or more affiliates of PineBridge.

Certain information may be based on information received from sources PineBridge Investments considers reliable; PineBridge Investments does not represent that such information is accurate or complete. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements that do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. PineBridge Investments is not soliciting or recommending any action based on any information in this document.

Opinions provided are those of the author and should not be construed as advice from VALIC.