In this installment of Market Currents, Katie Nixon, Chief Investment Officer for Wealth Management at Northern Trust, demystifies the world of market volatility with Northern Trust Asset Management’s Deputy CIO and CIO of Global Equities Michael Hunstad.  Katie and Michael level set the discussion with a review of changes to the market’s structure since the Global Financial Crisis that have shaped its current volatility profile. They discuss the declining role of institutions in price discovery and the rise of retail investors, algorithmic trading, and the use of options leverage to explain how markets are more sensitive and reactive to new information. They also describe how market concentration among MAG7 and tech-adjacent stocks has, perhaps counterintuitively, muted market volatility in recent years. Recent spikes in market volatility have demonstrated the role that quality has played — and can in the future play — in portfolio protection and expected alpha generation. In conjunction with quality, value stocks are poised to play a significant role in overall portfolio diversification, with value priced attractively relative to its own history and to higher growth segments of equity markets. Katie and Michael close with their thoughts on volatility during election cycles, and how emphasis on quality, value and low-volatility names can benefit investors post-election. (0:52) – What is the VIX index, and what is its recent history? (2:38) – What structural factors have driven recent market volatility and will likely impact the market going forward? (7:09) – Is the market less efficient than in the past? (8:13) – Is the rise of the “Meme Stocks” evidence of the growing importance of retail investors in price discovery? (9:55) – How has high market concentration affected market volatility? (13:25) – How did different market segments perform amid recent spikes in overall market volatility? (16:28) – How have bonds affected portfolio-level diversification? (18:01) – Is value another area that can offer diversification? (19:45) – Do relative valuations between value and growth suggest a shift into value stocks may be warranted? (20:51) – What happens to volatility around presidential election periods? (22:57) – Should investors be afraid of what’s to come — or be taking advantage?

In this episode, Katie Nixon, Chief Investment Officer for Wealth Management at Northern Trust, is joined by Northern Trust Asset Management’s Head of Global Macro for Fixed Income, Antulio Bomfim, to discuss the causes, historical context and future implications of the Fed’s 50-basis-point start to the rate-cutting cycle. Antulio brings more than 30 years of combined experience as a buy-side portfolio manager, researcher, author and senior advisor to the Board of Governors of the U.S. Federal Reserve System. Katie and Antulio discuss the unusual size of the initial rate cut, which reflects a shift in the balance of risks between expected inflation and labor market conditions. Specifically, the Fed’s intentional use of the term “recalibration” of rate policy signals confidence that inflation is trending toward its target and that further deterioration in labor markets should be preempted. They go on to define the concept of a neutral interest rate, the factors that influence its level, how the approximate 3% neutral rate fits into the context of history, and what this means for fair value in Treasury markets. Finally, they discuss the factors that influence the term premium in Treasury markets as well as the roles that communications and managing the balance sheet play in the Fed’s monetary policy toolbox. (0:49) – What conditions preceded the new cutting cycle?(2:50) – What is Antulio’s role and professional background.(3:44) – What does the Fed’s unusual 50-basis-point rate cut signal to markets?(5:23) – Does the Fed see more labor market weakness than the market is anticipating?(8:18) – What does the Fed mean by recalibration, and how does it inform future Fed policy?(12:37) – What does “neutral” interest rate policy mean, and what factors influence it?(15:19) – How does the current, approximate 3% neutral rate fit into historical context?(17:53) – What implications does a higher neutral rate have for Treasury markets?(20:03) – What factors influence the term premium?(22:47) – Is there a similar concept of neutral for the Fed’s balance sheet?

Join Katie Nixon, Chief Investment Officer for Wealth Management at Northern Trust, as she delves into the transformative world of artificial intelligence (AI) with Deb Koch, Northern Trust's Senior Equity Research Analyst. In this episode of Market Currents, they explore AI's burgeoning influence on the tech sector and its potential to reshape industries. Katie and Deb discuss how AI is not only boosting productivity but also driving stock performance across tech and tech-adjacent companies. With insights on recent market trends, the role of key players like NVIDIA, and the implications of AI advancements, this episode provides a comprehensive overview of AI's market dynamics. They also address the broader economic impact of AI, including its role in creating new market opportunities along with the challenges it poses. From regulatory scrutiny to the adoption rates among enterprises, Katie and Deb analyze the multifaceted landscape of AI integration and what it means for the future of technology. Highlights: (0:34) – What is AI and how has it evolved?(2:08) – Recent earnings results and market performance driven by AI.(4:23) – What is NVIDIA’s role in the AI landscape?(8:35) – Emerging competitors and constraints in AI growth.(11:06 )– MAG 5 stocks and their influence on the market.(14:33) – Regulatory scrutiny and its impact on AI adoption.(23:35) – How companies and boards are managing AI adoption.(25:16) – Resources for investors to stay updated on AI trends.  Links: Northern Trust - Wealth ManagementNorthern Trust TwitterKatie Nixon BioKatie Nixon LinkedInDeb Koch Linkedin  Feedback: If you have questions about the show or suggestions for topics you'd like discussed in future episodes, please email our producer at contactnorthern@ntrs.com.