The Federal Reserve announced that it was raising the target range for the Fed funds rate by 75 basis points (bps) to 1.50%–1.75%. An apparent briefing to the financial press last week meant that this course of action was fully priced in by the rates market beforehand, despite just 50 bps being priced as recently […]
June 2022
US small-cap stocks have underperformed large-cap peers in recent years, opening a significant valuation discount that seems hard to justify based on relative earnings strength or balance sheet health. Looking ahead, the sector exposure of small-cap stocks may make them better positioned for the current environment of rising interest rates and high commodity prices. While […]
June 2022
Yes, we think corporate earnings expectations are likely too high. This is because earnings are well above the long-term trend, and we expect inflation and higher policy rates will put downward pressure on profits margins. After growing by more than 50% in 2021, global corporate earnings are significantly higher than the long-term trend. However, nominal […]
June 2022
Credit assets have sold off in recent weeks in unison with other risk assets, as market concern has shifted from one extreme of growth and inflation running too hot to another of stagflation, or even outright recession. Despite the improvement in credit pricing, we believe investors should be patient when adding to high-beta credit portfolios. […]
May 2022
Yes, although such investments are not for the faint of heart. As we have seen in 2022, both stocks and bonds have lost value as inflation expectations have escalated. The current environment favors building robustness into portfolios, and exposure to commodities—in addition to high quality bonds—could be a part of this, particularly for investors whose […]
May 2022
Global inflation has been higher and more persistent than most economists anticipated. Some inflationary pressures related to the pandemic have started to show signs of easing, but new pressures related to Russia’s invasion of Ukraine and lockdowns associated with China’s “zero-COVID” policy create new challenges. At the same time, central banks have declared war on […]
May 2022
Yesterday, the Federal Reserve announced it would raise the target range for the Fed funds rate 50 basis points (bps) to 0.75%–1.00%. It also formalized plans to reduce its $9 trillion balance sheet starting June 1, with an initial monthly cap of $47.5 billion, rising to $95 billion per month on September 1. At that […]
May 2022
No, we do not recommend that investors go long duration in fixed income portfolios. The uncertain inflation outlook and potential for more aggressive policy tightening suggest yields could rise further. That said, we believe investors that are short duration in their fixed income portfolios should increase duration to match their benchmark, given the improved risk/reward […]
April 2022