The Macro Report | December 2016
Beyond belief: Self-perpetuating market stories
Stories that people tell about markets have a way of reinforcing themselves. There are investors who begin to invest because they believe the stories are true. And there are investors who don’t necessarily believe the stories, but invest based on the conclusion that other investors may believe them. The dominant tale now — in the United States, at least — is that the market’s positive potential has risen because U.S. politics has changed.
Given how long the markets have operated under a grand narrative involving the “new normal,” it is hard to imagine that portfolios are well positioned for a world with Donald Trump as the U.S. president. We think that much money has yet to be moved around to respond to the new expectations for U.S. political regime change. Against this backdrop, we look deeper into the post-election U.S. stock market rally, the evolving landscape of European political risk, and China’s continued efforts to maintain control of its economy.
The Trump reflation trade
The market’s honeymoon with Trump may not end well if U.S. policies tilt into a protectionist stance.
Living with political risk in Europe
Although populist political pressures are strong across Europe, they may not prove strong enough to break EU institutions.
About the macro report
The Macro Report is written by members of Putnam’s Fixed Income team. With backgrounds in applied economics, currency and interest-rate analysis, and sovereign and local bond market dynamics, this group conducts macroeconomic research in support of Putnam’s global fixed-income strategies.
Michael Atkin, Portfolio Manager
Investing since 1988
Sovereign debt, global growth analysis
Albert Chan, CFA, Portfolio Manager
Interest-rate derivatives, government debt, risk analysis
Onsel Emre, PhD, Analyst
Inflation, risk analysis, global growth dynamics
Sterling Horne, Analyst
Politics and economics
Irina Solyanik, CFA, Analyst
Quantitive analysis, growth forecasting
Izzet Yildiz, PhD, Analyst
Labor market analysis, global growth dynamics