Insights

02/07/2023 Investment Talks

Investing Today in the Sustainable Leaders of Tomorrow: The Potential for US ESG Improvers

The massive inflows into ESG funds in recent years have led to market crowding and potentially unreasonable valuation premiums for “ESG Leaders,” or companies with the highest relative ESG ratings. In the US, that group of companies is disproportionately comprised of asset-light, high-growth companies that were able to embrace ESG policies and related disclosures relatively easily. We believe the shift from growth to value will sustain itself for years, and that by incorporating forward-looking ESG analysis, investors can identify future ESG Leaders—or “ESG Improvers”—in the value side of the US stock market.

02/06/2023 Investment Talks

US Federal Reserve Review and Outlook

At its February meeting, the US Federal Reserve slowed the pace of rate hikes for the second consecutive meeting from 50bp to 25bp, moving the Fed funds target rate to 4.50-4.75%. We think the tight labor report and signs of sticky wages means the US Federal Reserve will likely continue its tightening cycle beyond the March meeting.

02/02/2023 Global Investment Views, Equity, Fixed income

Markets are Shifting Away From Inflation and Towards Growth

Markets are shifting focus away from inflation towards growth, with a slightly less disruptive economic picture for Europe and a more optimistic view on China. Intra-market rotations also materialized, with cyclical stocks favored over defensive names in Europe and tech stocks in the US supported by expectations of a less aggressive US Federal Reserve. Going forward, four themes should be crucial: (1) inflation/growth balance; (2) central bank actions; (3) dollar weakening; and (4) the corporate earnings trajectory. Any negative growth and earnings surprise could drive markets lower while there are no short-term triggers for upside at current valuation levels.

01/06/2023 Cross Asset

A Strained German Economy Can Be Good News For Europe

In Europe, due to high inflation and a fall in household and business confidence, the outlook remains uncertain, with a risk of gas rationing during the winter, which would cause industrial production to fall further. In the short term, the drivers of domestic demand (consumption and investment) have been weakened. High energy prices are weighing on industry, construction, and investment. Meanwhile, inflation is reducing real incomes and real wages are falling despite increases in negotiated wages and a strong labor market.

12/20/2022 Global Investment Views, Equity, Fixed income

Relief Rally Unlikely to Continue

For markets, this economic backdrop calls for a confirmation of a correction regime at the end of 2022 and in H1 2023, with inflation slowing, but still above normal levels. The correction phase will likely be driven by the profit recession, which we expect to materialize in H1. We believe a more cautious stance in equities would be prudent. For government bonds, slowing economic growth and hints about the change in the size of rate hikes may call for an active duration stance.

12/20/2022 Investment Talks

Will 2023 be the First Year with Repeat Negative High Yield Performance?

In every calendar year following a year of negative US high yield returns, high yield bonds posted positive returns. In this paper, we analyze the seven negative years of high yield bond returns to determine the reason for this positive performance – and consider what this could mean for investor portfolios in 2023.

12/15/2022 Investment Talks

Fed: Staying the Course Until the Job is Done

The most striking takeaway from the Federal Open Market Committee is the near uniformity among FOMC members that the terminal level for rates will exceed 5%. It appears the lower-than-expected October and November Consumer Price Inflation data was not enough to change members' views. Debt ceiling considerations are likely to make the cash balance that the US Treasury holds at the Fed very volatile, leading to reserve volatility. If it leads to money market disruptions, it would be a sign that the supply of reserves in the system is approaching scarcity and could halt the balance sheet run-off.

12/13/2022 Investment Talks

Housing Outlook: We Expect Defaults to Remain Low as Prices Decline

While we are bearish on the outlook for home prices, we are bullish on the outlook for mortgage defaults. Importantly, we do not expect a repeat of the housing crisis of 2008, nor a surge in distressed sales. This is because the vast majority of today’s borrowers have fixed-rate mortgages, and mortgage modifications are heavily prioritized over foreclosure. However, we do expect declines in home prices of roughly 15% over the next three years, with the majority of the decline occurring in 2023.

12/06/2022 Investment Talks

Weathering the Storm in US Equities

Quality factors may signal the potential for outperformance.