Flash Report May 2017

Markets are rediscounting expectations of persistent US outperformance that were based on disproportionate relative corporate earnings, higher relative real interest rates, and an exceptionally strong US dollar. Economic data reflect that nominal growth rates outside of the US are catching up and that the lagged effects of stimulative monetary policies are benefitting most those countries which have been most out of favor. As a result, US stocks underperformed non-US stocks, long-duration Treasuries are up, and the US dollar has returned to pre-election levels. Tightening will take center stage prospectively when central banks respond to the successful outcomes of their prior policy actions.

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