Reflation is a fiscal or monetary policy which is designed to expand a country’s output and curb the effects of deflation. We are currently experiencing reflation policies in the United States which include a move to reduce taxes in an attempt to stimulate the economy.
(The balance of this blog is meant to be informational only. Nothing is to be taken as a recommendation to buy or sell any particular investment positions.)
As the following chart indicates, the 10-year government bond yields are beginning to recover from a period of decline, which has lasted from 1983 until recently.
So what might this mean for your investment portfolio?
Reflationary forces tend to put downward pressure on fixed income returns. Please note this also can impact preferred securities as well.
Conversely, the United States equities market surged from after the November election until a few weeks ago.
The anticipation was that sweeping legislation would be quickly passed regarding fiscal expansion and regulatory reform. However, the hopes for “quickly passing” have been dashed.
Therefore, although still lingering near all-time highs, we find the U.S. equities market staying rather flat.
Have you noticed what’s been happening in Europe and Japan? While their economic recovery might be less flashy than what is happening in the United States, these respective markets are experiencing stock market growth based on strong earnings momentum.
In addition to emerging markets, your Resonate team continues to believe that there is opportunity both throughout the euro zone and Japan.
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Barbara A. Culver
CFP®, ChFC®, CLU, AEP®
Sources: BlackRock Investment Institute and Thomson Reuters, March 2017.