Europe Uncertainty, U.S. Indecision to Dominate 3Q

According to John Hailer, chief executive of Natixis Global Asset Management (NGAM) in the Americas and Asia, institutional and retail investors around the world continue to face low-rate, high-volatility conditions.

Hailer’s comments were part of his quarterly series of remarks on markets and the economy. In each of the last three presidential election years, the Standard & Poor’s 500 Index has declined an average of 4.1% in the third quarter.

“Investors have remained squarely focused on managing volatility using new strategies and approaches to preserve capital, maintain flexibility and achieve yield,” Hailer said. “There are no safe havens, only more durable investments.”

Policy uncertainty, anemic job growth and struggling global markets will continue to weigh on markets in the U.S., Hailer said “Volatility has been the order of the day. The biggest question is when, or whether, Europe can identify a long-term fiscal and political integration that satisfies markets and voters.”

Hailer’s other observations include:

• Employment may have plateaued. The number of Americans hired in the second quarter averaged 75,000 per month, only one-third the average monthly gain for the first quarter. Rising unit labor costs amid falling productivity will continue to challenge job growth.
• U.S. markets are volatile, but still good long-term value. The S&P 500 experienced near-record first-quarter gains, virtually lost the gain within two months, then roared back with the strongest June since 1999. But with equities priced slightly below long-term averages, markets at about 13 times expected earnings, and corporate and high yield bonds in favor, Natixis’ active managers still see very good values for the long term, particularly when combined with non-correlated alternative investments.
• Earnings growth declines. Corporate earnings growth is expected to have dropped over the last three months, in part because of declining revenue from Europe, but will still mark the 11^th straight positive quarter for the S&P 500.
• Emerging markets will struggle. China will probably have a soft landing after economic growth declined to near 7%. But expect greater volatility in other emerging markets as global demand continues to drop and countries struggle with structural change.

The full video can be seen here.