Understanding Various Factors Affecting Market Performance
- Long- and short-term drivers of market performance
- Differences between a secular and cyclical outlook
What factors affect market performance?
Financial market performance is driven by many complex, interrelated secular (long-term) and cyclical (short-term) factors that directly and indirectly influence the economy, markets, and investment returns. These factors include central bank policy affecting interest rates and employment, fiscal policy, company-specific performance, and geopolitical events at home and abroad.
Making sense of all the information can be confusing. With the goal of helping investors take advantage of opportunities and manage risks, PIMCO publishes its proprietary Cyclical Outlook and Secular Outlook four times a year, providing well-rounded views from PIMCO experts on the global economy, markets, and various asset classes.
What is a secular outlook?
In the world of investing, the word secular is used to describe long-term trends, activities and viewpoints. Secular factors may remain largely consistent over time and are less likely to be affected by short-term fluctuations.Investors looking to invest for the long term need to have a secular view of the market – that is, how they think it may perform over the years ahead so they can make informed, strategic decisions to guide the course of their investments for the long run.
At PIMCO, we produce our own Secular Outlook for the global economy and financial markets with a three- to five-year investment horizon, as we identify the broad trends and themes we believe will have important investment implications over that time frame. We believe understanding how macroeconomic fundamentals may unfold in different parts of the world is critical to identifying investment trends and potential areas of risk.
Some of the macroeconomic factors we consider when forming a long-term view – and which other investors may find useful to consider – include:
- The outlook for inflation
- Global central bank monetary policy and interest rate decisions
- Long-term political events, leadership changes and trends
- Sovereign debt levels
- Supply and demand forces behind global trade
- Fiscal policy, including tax reform as well as government spending and investment.
What is a cyclical outlook?
A cyclical view of the market is at the other end of the spectrum, providing insight into the short-term factors and current events influencing financial markets, asset classes or sectors.
Even those investing for the long run should keep an eye on short-term market forces for the information they may provide about opportunities and risks.
In addition to our annual secular forum, PIMCO investment professionals meet quarterly, three times a year to assess short-term macroeconomic and market factors, and share their views in our Cyclical Outlook, which guide our more immediate investment decisions and recommendations for investors.
Some examples of cyclical factors we consider when assessing market performance and return potential include:
- The current business cycle and perceptions of its strengths and vulnerabilities
- Potential near-term implications of current political events and policy decisions – both domestic and abroad
- Supply and demand forces in a particular asset class or sector
- Company results and risk factors
How can PIMCO’s cyclical and secular views help investors?
Our short-term cyclical view of the market and long-term secular outlook can guide investors in navigating markets. A robust secular view can offer insights into long-range investment themes and help to keep investors on the right long-term path. In the face of day-to-day market distractions, this can be a valuable tool for guiding the investment decision-making process. An up-to-date reading on key cyclical forces, on the other hand, is essential to stay aware of the more immediate, on-the-ground conditions, risks, and opportunities. When used together, Cyclical Outlook and Secular Outlook can help investors position investment portfolios to benefit from structural changes and broader trends in the global economy, while still capturing opportunities presented by current events.
Download 5 Things You Need to Know About: Markets for more information.