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Clear Harbor Quarterly Market Outlook

Clear Harbor Outlook for 2020 

Ten years ago, the world wondered what would follow the extraordinary fiscal and monetary measures taken during the financial crisis. Would major economies transition to sustained flight under their own power, or crash back into severe recession? Ultimately, concerns about a relapse subsided. However, some crisis-era policies have become the norm—and urgent questions of political and economic realignment have been at the fore, at home and abroad, ever since.

The decade that began asking “when will the carnage end,” thus takes its leave with a very different question: “How long can prosperity continue?” While we welcome this reversal in emphasis, we believe that plotting a prudent course will take just as much scrutiny and effort in 2020 as it did in 2010.

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Clear Harbor Outlook for 2019 Q4

As we race toward the final quarter of 2019, markets are defying widespread narratives of decelerating global growth and accelerating geopolitical uncertainty as much as they have at any time over the last decade. Equity benchmarks for U.S. and global developed markets are better by 10-20% so far this year, while emerging markets have notched an average 5.5%.[1]

These gains have occurred despite little progress on the trade, intellectual property and cyber-theft concerns that prompted the current tariff spat between the U.S. and China, while Britain remains unprepared for a negotiated break from the European Union ahead of the October 31st deadline. Iran’s brazen bombing of Saudi Arabia’s energy infrastructure represents a recent high-water mark in tensions between the two countries, and North Korea continues its saber-rattling with occasional “conventional missile” tests in an apparent bid for the attention of the Trump administration and global observers.

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Clear Harbor Outlook for 2019 Q3

In the second quarter, major asset classes held onto the first quarter’s impressive gains despite decelerating corporate earnings, a seemingly abrupt turn in U.S. monetary policy, and significantly heightened tensions between the world’s two largest economies. Beyond the U.S.-China trade spat, other geopolitical disturbances erupted: In the Straits of Hormuz, Iran was implicated in attacks on oil tankers; in Hong Kong, residents turned out to support the island territory’s unique legal protections in the largest demonstrations since its handover from Britain to China in 1997. The UK’s exit from the European Union remained constipated, costing Prime Minister Theresa May her post and spreading further heartburn across the Continent. 

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Clear Harbor Outlook for 2019 Q2

After closing out a year in which returns were dented by decelerating economic data worldwide and a Federal Reserve seemingly bent on a steady pace of interest-rate hikes, markets gave investors some relief in the first quarter of 2019. The S&P 500 is better by 13.6% year-to-date, and 21.2% since the December 24th near-term bottom; international equities, as measured by the MSCI All-World Ex-U.S. Index, gained 10.4% in the quarter.[1] Fixed Income also fared well, with the Bloomberg Barclays Aggregate Bond Index improving 2.9% amid a rise in sovereign bond prices and a reasonably healthy credit environment.

The pivot in market performance came in January, when Fed Chairman Jerome Powell announced a return to a more neutral monetary policy, even as he voiced confidence in U.S. economic health. This somewhat realigned the U.S. with continued easy posturing from the European Central Bank, Bank of Japan and even the central bank of China. In fact, approximately $10 trillion of global government debt now offers negative returns to bondholders—an increase of nearly $2 trillion in the first quarter alone.

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Clear Harbor Outlook for 2019

After years of advances, global equity markets ended 2018 with the stinging reminder that they can still reverse on a moment’s notice. A year that began amidst historically low inflation, accelerating economic growth and expanding equity valuations ended with an eruption in volatility and the meaningful outperformance of broad fixed income benchmarks—precisely the reverse of what most strategists had predicted. 

Record-breaking swings in December promise to make this the worst year for the S&P 500 since 2008, with a decline of 5.2% through December 28th.[1] Despite a rally into the fall, global equity markets neared year-end off 9.6%; largely in response to the relative strength of the U.S. dollar, gold faltered by 1.9%. In contrast, the broad benchmark for U.S. bonds ended the year off just 0.2%.

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