Is Market Volatility on the Rise?

by: , Strategic Asset Allocation & Solutions Group, New York Life Investment Management

Volatility in a Single-Digit Return Environment

Given current valuations, low and rising interest rates, and modest global growth, we expect a single-digit return environment in the years ahead.

The U.S. equity market no longer appears cheap, and rising interest rates could increase the borrowing costs for firms. Therefore, we expect single-digit equity returns in the U.S. market to be driven by continued earnings growth, stable price-to-earnings ratios, and a modest pickup in real economic growth from previously tepid levels.

Developed Market Equities May Return Five to Seven Percent a Year in the Current Environment1

Over the past six months, we have witnessed relatively low equity market volatility—a common occurrence in the late stages of a bull market—but we continue to believe that volatility will rise.

Given the outlook for continued economic growth and a firming labor market, we expect that interest rates will slowly progress higher. In our opinion, fixed-income assets with both shorter durations and higher yields may want to be considered, if suitable, since they have historically outperformed other fixed-income assets in a rising rate environment.2 Past performance is no guarantee of future results.

In a Rising Rate Environment, Higher-Yielding, Shorter Duration Assets Have Historically Outperformed Their Peers2

With historically tight credit spreads, consider diversely allocating within fixed income. In an effort to manage volatility, investors may want to consider strategies that provide exposure to assets that have performed well during periods of rising rates, if suitable.

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1. Source: New York Life Investment Management, 6/30/17.1. Source: New York Life Investment Management, 6/30/17.

2. Sources: Thomson Reuters Datastream, New York Life Investments, 6/30/17. High yield is represented by the Bloomberg Barclays U.S. Corporate High Yield Index. Short- duration high yield is represented by the BoA/ML U.S. Cash Pay High Yield BB-B Rated 1-5 Year Index. Bank loans are represented by the Credit Suisse Leveraged Loan Index. U.S. investment grade is represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Past performance is no guarantee of future results. It is not possible to invest directly in an index. Index definitions can be found at the end of this guide.

All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against a loss in a declining market.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

P/E Ratio (price‐to‐earnings) denotes the weighted average of all the P/Es of the securities in the fund’s portfolio.

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SAS Group

Strategic Asset Allocation & Solutions Group, New York Life Investment Management

NYLIM’s Strategic Asset Allocation & Solutions (SAS) Group invests tactically across the full span of global capital markets, designing comprehensive solutions for a variety of client needs. Managed assets include MainStay Asset Allocation and Retirement Funds, mandates for third parties, and a customized strategy for the New York Life General Account.

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