A Miasma of Uncertainty Grips Investors | Chief Investment Officer

A leadership vacuum in the House of Representatives. Another pending federal government shutdown next month (maybe). New anxieties about the economy. High oil prices. An autoworkers strike. All these factors and others have stoked investor uncertainty.

That is reflected in the stock market, which since August has been on a downward trend. The S&P 500 has lost 6% over the past two months, squelching the rally sparked earlier in the year by artificial intelligence advances and general optimism about tech stocks.

“Right now, we’re at maximum uncertainty,” declared Brad McMillan, the CIO of Commonwealth Financial Network, in a statement.

To Jamie Cox, a managing partner in Harris Financial Group, in a written commentary, “Investors are sick and tired of being jerked around with out-of-control spending, the inability to govern, and the constant dragging of markets to the edge of economic calamity with shutdowns and debt ceiling nonsense.”

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The strong U.S. jobs report out Friday morning—the U.S. labor market added 336,000 jobs in September, nearly double economists’ consensus 170,000—fueled concern that the Federal Reserve will continue to raise interest rates. The result, former Treasury Secretary Lawrence Summers told Bloomberg TV, boosts the odds that the nation’s economy eventually will suffer a “hard landing.”

To be sure, after diving as the jobs report came out, stocks reversed course, and the S&P 500 ended the day up 1.2%, as sentiment grew that the strong employment growth might be at its zenith.

Still, lots of trouble looms, especially in Washington. The House speaker’s job is vacant following the ouster of Representative Kevin McCarthy, R-California. With no one in charge of the lower chamber, questions swirl whether Congress can prevent a government closure after November 17, the expiration date for a stopgap measure extending authority for federal funding.

Meanwhile, partisan differences remain wide, as the electorate braces for a nasty likely rematch next year between President Joe Biden and his GOP predecessor, Donald Trump.

Add in the Fed’s commitment to further tighten interest rates (one more is expected), dipping consumer confidence, the inverted yield curve and more oil price boosts. While off their September high point, crude prices are 24% above last March’s nadir.

This comes as a sell-off continues in the Treasury bond market, with the benchmark 10-year note’s yield hitting almost 4.8%, its highest level since 2007. More bad news comes from Detroit, where the United Autoworkers are striking against two automakers.

In the words of Mohamed El-Erian, Allianz’s chief economic adviser, on Bloomberg TV, “Something is likely to break.”

Tags: autoworkers strike, Bond Market, Congress, Federal Reserve, government shutdown, jobs report, Kevin McCarthy, Larry Summers, Mohamed El-Erian, oil prices, S&P 500, uncertainty

Double-digit equities gains were the main driver behind the School Employees Retirement System of Ohio’s 7.39% investment return for the fiscal year that ended June 30, beating its benchmark by 30 basis points and raising its asset value to more than $17.8 billion.

Global equities were the top-performing asset class for the fiscal year, returning 15.6%, followed by global private credit, which returned 6.07%. However, both underperformed their benchmarks, by 93 and 217 bps, respectively.

The pension fund’s outperformance was mainly driven by its global private equity portfolio, which returned 2.54% and topped its benchmark—which lost more than 4%—by more than 650 bps. Global real assets were the next top outperformer for Ohio SERS, beating its benchmark by nearly 300 bps with a 1.30% return versus a 1.63% loss.

The fixed-income portfolio also contributed to the retirement system’s excess return with a 0.74% gain, compared with a 0.94% loss for its benchmark Bloomberg U.S. Aggregate Bond Index. Ohio SERS’ “opportunistic and tactical” portfolio was the only other significant contributor to its outperformance, as its 2.71% return topped its benchmark’s return of 1.06%.

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Additionally, the retirement system’s board of trustees unanimously approved at its September meeting a 2.5% cost-of-living adjustment increase for eligible benefit recipients in 2024. By law, the pension fund bases its COLA on the year-to-year change in the consumer price index from June 2022 to June 2023 for urban wage earners (CPI-W) with a floor of 0% and a cap of 2.5%.

According to SERS’ actuary, the CPI-W for the fiscal year was 2.3%. The board approved the statutory maximum of 2.5%, as its actuary projected the higher COLA amount will not materially impair the pension fund’s funded status.