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 Trump reflation trade

The market’s honeymoon with Trump may not end well if U.S. policies tilt into a protectionist stance.

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Living with political risk in Europe

Living with political risk in Europe

Although populist political pressures are strong across Europe, they may not prove strong enough to break EU institutions.

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EM weakness may spread

EM weakness may spread

China continues to adjust its capital controls while political change in Washington, D.C., may signal substantive transformations of China/U.S. relations.

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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