U.S. equities and bonds came out big winners in the income-parched, post-Brexit aftermath, because this nation has better growth prospects, even if they are already priced into valuations. Against a backdrop of prolonged uncertainty in Europe and China, the nations of Canada and Mexico suddenly appear to be bastions of stability. Both those energy-rich countries averted recessions despite oil’s collapse and are now attracting a flood of foreign capital just as the United States is.
Expectations for future returns should be moderated across most asset classes, Memani adds. For advisors designing retirement plans, the challenge just got magnified.
When it comes to expectations, the area where returns should be totally muted is the global bond arena, where negative interest rates in many nations signal a bubble as unprecedented as that of tech stocks in 2000. As of mid-July, 40-year Japanese bonds had climbed almost 50% as institutional investors have typically bought and sold these long-term hot potatoes in hours if not minutes. If that isn’t ringing a bell, what is?