Insights
into
key
market
performance
and
economic
trends
from
Dan
Kemp,
Morningstar’s
global
chief
research
and
investment
officer.
In
a
busy
week
ahead
for
economic
data,
the
focus
of
investors
is
likely
to
be
on
inflation
data
with
the
latest
reading
on
producer
prices
on
Tuesday
and
the
Consumer
Price
Index
(CPI)
on
Wednesday.
Annual
core
CPI
(which
excludes
volatile
food
and
energy
prices)
is
expected
to
fall
from
3.8%
to
3.6%.
A
higher
number
would
challenge
the
dominant
narrative
among
investors
that
inflation
is
falling
(albeit
at
a
slower
rate
than
most
hoped)
and
could
lead
to
volatility
in
asset
prices.
However,
it
is
important
to
remember
that
a
single
economic
data
point
is
of
little
use
when
estimating
the
returns
of
an
asset
class
and
therefore
more
likely
to
be
a
snare
than
an
opportunity
for
investors.
Investor
Sentiment
to
the
Fore
Last
week
was
light
on
data
and
but
heavy
on
comment
by
central
bank
officials
the
Morningstar
US
Market
index
rose
1.85%
and
bond
yields
fell
as
investors
were
reassured
about
the
path
of
future
interest
rates.
This
provides
us
with
a
great
example
of
importance
of
investor
sentiment
on
asset
prices
over
short
time
periods.
Separating
these
changes
in
sentiment
from
adjustments
to
the
fundamental
attractiveness
of
an
asset
is
one
of
the
key
challenges
of
investing,
as
the
former
can
trigger
our
natural
behavioral
biases
and
encourage
us
to
make
poor
investing
decisions.
The
influence
of
sentiment
can
be
when
breaking
down
global
equity
markets
into
their
constituent
components.
During
the
first
quarter
of
the
year,
50%
of
the
returns
in
US
equities,
came
from
positive
sentiment,
as
expressed
by
a
rise
in
the
price/earnings
ratio,
rather
than
the
fundamental
returns
of
the
businesses
that
comprise
the
index
(profit
margins,
sales
and
the
return
of
capital
to
shareholders).
While
sentiment
may
continue
to
improve,
driving
stock
prices
higher,
it
is
important
that
investors
recognise
that
the
sentiment
component
of
a
portfolio’s
value
can
disappear
if
investors
become
gloomier
in
their
prognosis.
However,
this
is
not
a
reason
to
change
investment
strategy
as
this
value
is
likely
to
be
rebuilt
in
the
future
providing
the
price
of
the
asset
does
not
significantly
exceed
its
fair
value.
To
dig
further
into
this
data
of
this
type,
you
can
download
our
quarterly
Markets
Observer
here
or
find
it
on
Direct
Compass.
Investing
in
An
Election
Year
A
key
driver
of
sentiment
this
year
is
likely
to
be
the
general
election.
Research
by
Morningstar
Wealth
illustrates
the
danger
of
allowing
political
views
to
influence
investing
decisions
and
the
importance
of
remaining
focused
on
the
long
term,
ignoring
all
of
the
politically
driven
forecasts
that
will
become
a
bigger
part
of
the
news
cycle
as
the
year
progresses.
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