In early December, MFS Investment Management pulled together several of its top experts to share year-end thoughts on the markets and trends affecting them. Erik Weisman, Ph.D., and a member of MFS’ fixed-income group, explains that we are now, of course, experiencing volatility spikes after enjoying recent all-time low volatility in the markets.
“The housing overhang needs to clear,” Weisman explains.
“We face a very challenging environment going forward,” he says. “We have a long way to go before a depression, however, and we’re doing all the right things today.”
Mike Roberge, MFS chief investment officer for U.S. Investments, believes that selective fixed-income markets offer compelling value. He also says the equity market is attractive from a long-term perspective, though volatility remains high.
Municipal bonds are relatively cheap compared with U.S. Treasuries, according to Roberge, and high-quality corporate bonds offer investors a yield premium over U.S. Treasuries — with a bias toward high-quality.
The S&P 500 has a trailing price-to-equity multiple of 14 as of October 30, 2008; this is way below the 10-year average level of nearly 24.
Roberge describes the following signs to watch for when looking for a market recovery: continued improvement in the credit markets, a yield curve that remains steep, stability in the financial and consumer-discretionary sectors and narrowing credit spreads.
On average since World War II, markets have hit bottom six months into a recession, and the average performance improvement in the S&P 500 12 months out of a trough is 37 percent.
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Janet Levaux, MBA/MA, is the managing editor of Research; reach her at jlevaux@researchmag.com.