Insights

09/27/2023 Global Investment Views, Equity, Fixed income

Bond yields attractive as inflation stabilizes

Markets have accepted the Fed’s message of higher-for-longer rates, and bond yields have drifted higher. These yield levels, coupled with a slowing economy, allow us to be positive on duration. With yields at historically high levels and inflation expected to slow, and with still-present recession risks, government bond markets offer good opportunities. In corporate credit, primary market activity has been strong and we see potential to benefit from new issue premia by favoring higher-quality parts.

09/20/2023 Cross Asset

The eurozone economy under scrutiny as policy support fades

The eurozone economy has stagnated over the last three quarters, although second-quarter growth was marginally positive due to strong idiosyncratic growth in one or two smaller countries. The countries more dependent on services, such as France and Spain, fared better, compared to those that rely more on manufacturing and exports, including Germany and Italy. Nonetheless, leading indicators suggest demand weakness is spreading to services. Forward-looking employment indicators, including wage offers for new jobs, also suggest some moderation in labor market strength, even though employment currently remains strong.

09/07/2023 Global Investment Views, Equity, Fixed income

Divergences persist: US resilience vs China weakness

If the recession in the US plays out as feared, both earnings and margins would come under pressure. The fiscal boost from the government has helped consumers, but we think excess savings could dissipate. We believe markets, which are priced for perfection, don't reflect this risk. On the other hand, valuations in some pockets are expensive vs others, making this an attractive market for active management.

09/05/2023 Investment Talks

Positive Signs for Municipal Bonds

From Q1 through Q3 of 2022, the municipal bond market experienced a sell-off unprecedented in over 40 years, with the Bloomberg Municipal Bond Index falling more than 12%. Since that time, the market has recovered somewhat, returning 6.42% from 9/30/2022 through 8/10/2023. Much of the 2021/2022 sell-off was driven by macro factors such as persistent inflation and the US Federal Reserve’s aggressive measures to tame it, while some of the pain was self-inflicted as investors hit the panic button – leading to over $115 billion of outflows. In our opinion, very little, if any, of the sell-off was due to fundamental concerns, and investors should consider this potential opportunity.

08/23/2023 Investment Talks

Going Global with Equities

As global markets react to central banks’ efforts to control persistent inflation, the opportunity set is changing across international equities. In our view, there are several underlying reasons to be optimistic about equity markets outside the US. Meanwhile, due to several factors, including recent significant stimulus and hopes over artificial intelligence, a handful of US stocks are experiencing significantly high valuations. In order to diversify their investments and find new opportunities, investors can consider incorporating global equities into their portfolios.

08/04/2023 Investment Talks

Implications of US Credit Downgrade

This week, Fitch Ratings, one of the three main independent debt ratings agencies, downgraded US debt from a AAA rating to AA+ with a stable outlook. This action reflects the expected fiscal deterioration of the US over the next three years, a high and growing general government debt burden, and the erosion of governance relative to “AA” and “AAA” rated peers. The ratings downgrade justification did not include anything new to the original May announcement and, as a result, initial market reaction was relatively muted. Yet there was an additional indirect impact:  as markets realized that US government financing needs were higher than anticipated, 10-year yields were pushed sharply higher to near 4.25%, near cycle highs.

08/02/2023 Cross Asset

Cross Asset: Where Will the Pieces Fall?

Today, the global economy is characterized by low growth, especially across developed markets, and high inflation, propelled by energy transition costs and supply-chain relocations, in a sort of transformative globalization. This has led to the end of "cheap money," as central banks fight inflation. Meanwhile, high public debt limits the room for fiscal maneuvering during economic downturns. All this can make economic cycles highly volatile, with inflationary periods and more frequent negative market phases than in the past three decades. This will highlight the relevance of embracing a dynamic asset allocation approach. We suggest investors keep a cautious stance, given the risk of weak corporate earnings, and favor bonds, as developed markets official rates may be close to a peak. Once visibility on earnings and growth improves, investors may raise their exposure to risky assets.

07/28/2023 Investment Talks

Fed Moving to a Pause With a Data-Dependent Approach

There were no surprises in the Federal Open Market Committee statement, or the press conference, so the reaction in the financial markets was rather muted. The same holds true for the Fed funds futures for the November meeting, which stood at 5.44%; markets are pricing in less than a 50% probability of another rate hike.  We continue to be active in duration management with a long interest rate duration bias. We focus on higher credit quality and sectors where spreads compensate for elevated macroeconomic uncertainty and tighter market liquidity. 

07/25/2023 Global Investment Views, Equity, Fixed income

Receding Inflation Doesn’t Mean the Battle is Won Yet

Amid excessive exuberance in markets, we continue to focus on earnings growth, financial conditions, and central bank policy actions. In the US, we continue to expect a mild recession in the 4th quarter of 2023 and 1st quarter of 2023, but we have upgraded our 2023 growth forecast to 1.6% on the back of improved growth revisions. Volatile fixed income markets mean our stance on duration and corporate credit remains active. We suggest investors stick to their long-term convictions but remain flexible.