Market Commentary

Keep Calm and Clip Bond Coupons

June 17, 2024

Also of note, the Committee has started to increase its longer-term “neutral” rate. The neutral rate is largely academic and thought of as the fed funds rate that is neither restrictive nor accommodative. The neutral rate has fallen over the past few decades, but given the resilience of the economy despite higher interest rates, the Fed has started to discuss what that new neutral rate should be, and that rate has started to creep up, at least marginally. 

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India at the Crossroads: Election Impact on India’s Economy

June 10, 2024

The pro-growth platform espoused by Modi and the BJP coalition included the promise of transitioning India from an “emerging market” to a “developed market,” a theme he referred to in 2022 when he urged Independence Day crowds to think in terms of becoming a developed country within 25 years as his policies would focus on efforts to upgrade infrastructure, power production, defense, and digital technology. Now, earlier concerns have been realized as to how Modi — the driving force in India’s modernization — will be able to successfully navigate any opposition to move forward with his agenda and hopes for a future “developed” India. 

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Adjusting the Sector Sails: Strong May Takeaways and a June Stock Setup

June 03, 2024

To say May was an eventful month for the market is an understatement. Investors navigated around the latter half of first-quarter earnings, a breakout to record highs for the broader market, elevated volatility across fixed income and currency markets, and a mixed bag of economic data — not to mention elevated political uncertainty stemming from the conviction of former President Donald Trump. Overall, markets shrugged off political uncertainty, bad economic data was mostly taken as good news for stocks by reviving hope for interest rate cuts, while good news helped write the goldilocks narrative of economic conditions being just right.

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Earnings Are Doing Their Part: Exploring Q1 Earnings

May 28, 2024

Upside to earnings estimates is par for the course, but guidance is where an earnings season can go from good to great. On that score, this earnings season was great, as estimates rose for this year and next — an unusual occurrence. Again, big tech was a big part of the story as estimates for 2024 and 2025 rose an average of 4.5% for the top five technology names. For the S&P 500 as a whole, estimates rose about 0.5%, compared with an average reduction historically near 2%.

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How's It Going? Depends on Who You Ask in a Post-Pandemic Economy

May 20, 2024

As millions of Americans took advantage of low rates, homeowners have historically low debt service payments as a percentage of their disposable income, as highlighted in the chart below. Refinancing, mostly with fixed-rate mortgages added to the spending splurge, delayed the inevitable landing, and created a headache for policy makers dealing with an economy less sensitive to interest rate policy.

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Preferred Securities: Still Our Preferred Non-Core Bond Sector

May 13, 2024

While there are many types of preferred securities, dividends are generally guaranteed, but may be deferred based on company management’s discretion. Preferred securities, then, tend to offer a higher yield compared to other bonds issued by a company to attract investors.

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Sell in May? Maybe Not. More Rhyme Than Reason

May 6, 2024

The current pause has now reached 280 days — the second-longest in modern market history, trailing only the 2006–07 pause that reached 446 days. The average Fed pause has lasted 146 days. The bearish angle on this statistic is that over the past 50 years, the S&P 500 has only gained 6% on average during pauses, and the gain during the current pause has reached 12.4%.

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That Was Quite a Week: A Pivotal One for the Markets

April 29, 2024

Now to the big question. What does the stalled disinflation trend mean for the Fed? On one hand, the steady annual pace of the Fed’s preferred inflation metric in March helped to assuage concerns that inflation was re-accelerating. However, the strength of the consumer suggests, despite tighter monetary policy, this economy is less interest-rate sensitive than previous cycles, as illustrated by strong residential investment. The Fed is backed into a corner with a strong economy and nagging inflation.

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Volatility Is Back: Understanding Ever-Changing Market Narrative

April 22, 2024

The shift toward higher-for-longer monetary policy has contributed to recent selling pressure in an overbought equity market. Treasury yields have rerated higher, but the increase can be attributed more to growth expectations outpacing inflation expectations. We also view the backup in rates as an opportunity for investors to lock in elevated high-quality fixed income yields. Dollar dominance has been another derivative of the higher-for-longer narrative, creating currency stability risk, especially for emerging markets. 

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Revisiting Energy: How Rate Cuts Could Benefit the Space

April 15, 2024

As the first quarter earnings season kicked off on April 12, expectations for the energy sector were decidedly negative. That low bar has tempted analysts to forecast a series of positive surprises as recent data releases for both the U.S. and China suggest a stronger economic underpinning, and the manufacturing sector appears to have bottomed in both countries. Oil demand — and prices — typically follow rising manufacturing and factory output, while rising consumer sentiment normally portends an increase in air travel, which also requires higher oil allocations.

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What to Watch This Earnings Season

April 8, 2024

The economic environment and AI investment remain supportive of corporate profits, so downside surprises this earnings season seem unlikely. Expectations for economic growth have firmed recently while earnings estimates have remained steady, an indication that the bar is not too high or too low. 

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IPOs as a Market Tell: What a Recent Uptick Could Mean

April 1, 2024

The IPO market climate encompasses all of the positives and negatives for a company to enter the public market with the hope of a successful introduction, and more importantly, maintaining investor interest. These factors combined set the stage for the IPO pipeline.

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Navigating the Strategic Investing Landscape: The Differences

March 25, 2024

Investing over a tactical time horizon, on the other hand, resembles the dynamic nature of changing tides, responding to short-term market conditions like the unpredictable surges and waves in the sea. Like a sailor in a small boat who is heading north may adjust sails to veer east, west, or even south to pick up strong winds or avoid turbulent waters, our Tactical Asset Allocation (TAA) process is more nimble and actively managed, seeking to capitalize on timely market trends and fluctuations by making more frequent adjustments based on technical analysis and current market fundamentals.

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A Busy (and Perhaps Historic) Week for Central Banks

March 18, 2024

This week will be a busy one for central banks, but aside from the BOJ, we think the next move for bankers is to lower interest rates and not raise them. We think the Fed is on hold until the summer months but in general, we expect lower policy rates by the end of this year. 

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Gold Shines Brighter Than Ever, Rallying to Record High

March 11, 2024

While a weaker dollar and falling interest rates are a big part of the gold-rally narrative, global central banks are another part of the story. Over the last few years, gold demand among central banks has notably accelerated, including record-setting net purchases of gold in 2022 and near-record-level buying in 2023

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Super Six Drives Solid Earnings Season

March 4, 2024

Consumers may increasingly push back on price increases in the quarters ahead, but for now, corporate America is doing an excellent job preserving margins, while demand from consumers and businesses has been strong enough to generate respectable sales gains.

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Buybacks Are Back

February 26, 2024

As illustrated in the “Magnificent Seven Buyback” chart, total buybacks for the group in 2023 totaled just over $195 billion, with AAPL and GOOG/L representing the lion’s share. Looking ahead to 2024, it could be another sizable year of share repurchases as the group still has $149 billion penciled in for buybacks. 

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Treasuries: Who’s Buying and Why it Matters

February 20, 2024

With the national debt standing at $34.23 trillion and expected to grow, U.S. Treasury sales are the key to paying the carrying costs. Each auction is heavily monitored by fixed income and equity markets alike to see where the yield settles, as higher yields have a more negative effect on the overall economy.

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Outlook for U.S. Economy Continues to Brighten

February 12, 2024

 Financial conditions improved in recent months as fewer banks tightened credit conditions in Q4 because fewer firms were pessimistic about demand. As investors digest the experience of loan officers, historically we experienced recessions when credit was this restricted. Improving credit conditions suggest the economy had good momentum as the New Year got underway and markets are responding accordingly.

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Will the January Barometer Come Through?

February 5, 2024

Market breadth has also not kept up with the pace of the rally. For example, declining shares modestly outpaced advancers last month and there were fewer S&P 500 stocks making new 52-week highs in January than in December. This negative divergence, defined by the S&P 500 moving higher as breadth metrics move lower, further raises the odds of a potential pullback or consolidation phase for stocks. 

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Is Too Much Optimism Priced In?

January 29, 2024

History shows higher interest rates have translated into lower stock valuations and vice versa. Consider the fundamental value of a stock is the present value of the company’s future cash flows.

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Will Shipping Disruptions Alter Fed Plans?

January 22, 2024

The global economy experienced multiple shocks in recent times from the Russian attacks on Ukraine, atrocities in the Middle East, the seating of an unconventional president in Argentina, and most recently, a crisis in the Red Sea. Yet, markets and the economy remain surprisingly resilient. Could the recent challenges in inter-continental shipping contribute to a resurgence of inflation and hamper the Fed’s plans this year?

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Magnificent Seven and Margins Are Keys to Q4 Earnings Season

January 16, 2024

This reporting period may lack the splashy “earnings recession over” headlines we got last quarter, but it takes on added importance because it sets the tone for 2024. After 2023 was a year in which improving valuations delivered strong gains, this year, earnings will likely have to do the heavy lifting.

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China 2024 Faces Demanding Economic Challenges

January 8, 2024

Still, as 2024 began, endemic problems remained with the property sector mired in debt, the shadow banking system (non-bank lending) showing signs of financial strain, and unemployment among the country’s youth hovering over 20%.

Moreover, a raft of economic and political/military issues are cause for concern as global investors have looked elsewhere for direct investment opportunities. Flows into China’s public companies have been hampered by questions regarding regulations that seem to fluctuate on political whims.

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Lessons Learned in 2023: “This Time Is Different” in Post-Pandemic Economy

January 2, 2024

What was surprising at the last Federal Open Market Committee (FOMC) meeting, and a key catalyst for the drop in rates and subsequent equity market rally, was that the Fed finally came down closer to market expectations for interest rate cuts versus the market being forced to recalibrate expectations higher. However, the gap between Fed projections and market expectations for monetary policy still remains high. 

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