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Eyes remain firmly on the Federal Reserve, which has engineered a landscape of materially higher real and nominal rates.
The repercussions of US midterm elections will be felt over the coming months and years, not days. The key is how the results are transmitted to the economy, chiefly through monetary and fiscal policy.
With many aspects of the US economy in decent shape, we believe spread widening in a recession is likely to be limited. Still, investors no longer need to overreach on risk.
Highlights from the week of November 11 – November 17, 2022
Eyes remain firmly on the Federal Reserve, which has engineered a landscape of materially higher real and nominal rates.
The repercussions of US midterm elections will be felt over the coming months and years, not days. The key is how the results are transmitted to the economy, chiefly through monetary and fiscal policy.
With many aspects of the US economy in decent shape, we believe spread widening in a recession is likely to be limited. Still, investors no longer need to overreach on risk.
US markets have not taken kindly to the Fed’s renewed course of monetary tightening, but the effects of the Fed’s actions are stretching far beyond US shores.
We expect inflation to ease despite a surprisingly high CPI reading for August, allowing the Federal Reserve to temper its aggressive pace of rate increases.
Stocks and bonds have pulled back since the Fed clarified its commitment to fighting inflation. Despite volatility, we believe equities will stay within a broad trading range and not retest earlier lows. Rising yields, particularly among spread assets, should make bonds appealing compared to equities.
Elevated volatility is here to stay, and that means many risk assets may become oversold, providing opportunities for investors to profit from mispriced risks.
Risks are rising: the Fed must thread a narrowing needle-eye to stop inflation without causing a recession. We’ve lightened equity positioning and reduced risk within fixed income segments of portfolios.
These are the six major themes influencing positioning across our fixed income portfolios for the second half of 2022.