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Title Speaker Date


Chris Molumphy: Big Picture Themes in 2015

Jan 13, 2015

Featuring:  Chris Molumphy, EVP, CIO, Franklin Templeton Fixed Income Group

  • There are a couple of themes that we are focusing on particularly for 2015. One of those themes is economic growth and the overall condition of the U.S. economy; the other is monetary policy.
  • As long-term fundamental investors, we tend to spend a lot of time trying to figure out the fundamental direction of the U.S. economy, and our overall take is that it is in pretty good shape, by and large. We’re pretty constructive when we look at the U.S. economy. Another theme for 2015 is the market focus on monetary policies. The U.S. Fed finally ended quantitative easing in late 2014 and appears to be transitioning into a different mode in 2015, when we think they will likely raise the Fed (federal) funds rate.
  • Contrasting the U.S. monetary policy with Japan and Europe, Japan is in the midst of full throttle QE which we expect to continue into 2015, and we think in Europe that it’s likely we could see QE of pretty good magnitude sooner rather than later.
  • Our bottom line: healthy U.S. economic growth combined with significant global liquidity, we think provides a pretty good backdrop for financial markets as we look out into 2015.
  • The price of oil and the significant fall seen over the past six months, in our view, is not necessarily implying something about global growth, but rather the result of the supply conditions that exist on a global basis.
  • Should oil stay at these current lower levels, we think there will be winners and losers. But net on net, we believe it may be overall a net positive for economic growth in the U.S. and other oil-importing economies.
  • We think lower oil prices will likely have an impact on inflation and one should expect that to continue, at least in the first couple of quarters of 2015.
  • As long-term investors, our view is that the equilibrium rate for intermediate U.S. Treasuries is higher, should be higher, and will likely eventually move higher.
  • Over the short to intermediate term, there remain some significant factors influencing domestic interest rates: inflation, global yields, and global liquidity.
  • With oil prices, we think headline inflation will be moving down, likely over at least the next couple of quarters, so we see inflation over the near term likely moving lower.
  • Global liquidity has really dominated the markets and driven financial markets up over the last number of years. We believe we’re likely to see significant global liquidity persist in the first half of 2015, if not throughout the majority of the year.
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The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of January 13, 2015, and may change without notice. A portfolio manager’s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund’s portfolio selection process. Holdings are subject to change. Investments involve risks. The value of investments can go down as well as up, and investors may not get back the full amount invested.

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All investments involve risks, including possible loss of principal.

For more information on any of our funds, contact your financial advisor or download a free prospectus. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

Footnotes

  1. Recorded on January 13, 2015.

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