With what many are calling the maturation of the current economic cycle, is the corporate default rate on the precipice of taking off? S&P is already calling for a 30-35% probability of a recession by the end of 2020. Economic data does show a slowing down while the proportion of high yield companies issuing debt is growing.
The U.S. 10-year Treasury is a barometer for interest rates and factors such as geopolitical concerns, slowing global growth and trade are only a few of the many variables that can impact yields. The important decision for most investors is not whether to invest, but rather which investments might help you meet your goals while staying within your risk tolerance parameters. With the 10-year U.S.
Much has been written recently about whether the U.S. economy is on the brink of a recession and if that will feed into the idea that the United States could be headed into the global negative interest rate environment.
The Fed Flow of Funds report was released on Friday, giving us a comprehensive snapshot of the U.S. economy on multiple fronts. Due to the immense amount of data provided, it is released on a quarter lag. We monitor this report closely for larger trends in leverage or liquidity needs for corporations and households to ascertain where vulnerabilities and opportunities might exist.
In anticipation of the Federal Reserve lowering rates next week at their meeting and the announcement this week that the European Central Bank (ECB) reduced rates to -0.50% and increased their purchasing of bonds a month, we believe it to be worthwhile to look at where we may be headed in policy and market action. Now we may be accused of being a bit presumptive about a future event such as an interest rate cut next week, however, we feel a bit confident in that the market is currently pricing in a 99.9% chance of a rate cut according to the Fed Fund Futures.
Have you read any research on ESG investing recently? If you have, then you’ll know that academic studies continue to stress the positive alpha-generating potential of ESG factors.
Contrary to narratives bombarding the markets right now, certain indicators are historically very bullish for equity assets. Though the anxiety about the flock of “black swans” being right around the corner helps to mitigate over exuberance, it astonishes me how many times we forget the previous prognostications and make new cases for the failed projection. Recently, I have been reflecting on Mark Twain’s quote: “I've had a lot of worries in my life, most of which never happened.”
Periods of volatility in fixed income and equity markets are nothing new but with each one comes a parade of teeth gnashing and hand wringing by experts extolling the virtues of selected investments while simultaneously predicting events often referred to as being much more dire than those we are experiencing at the moment. It seems, more often than not, that such bold predictions make for good headlines but rarely for investment results.
The state of global interest rates is sinking quickly. Negative interest rates have now engulfed over $15 trillion of global sovereign debt with nearly 30% of all developed country sovereign debt having a negative yield.
For the past several months, the rating agencies have been imposing new standards in the ratings of municipal revenue bonds by imposing ceilings on these ratings linked to the issuer’s general obligation (GO) pledge. This has resulted in downgrades of some well-known, and not-so-well-known, issuers despite no change in the fundamental credit profile of the revenue bond, or the related general obligation bond, issuer. In fact, some of these downgrades occurred in the face of an improving credit profile.
Since 2004 dividends have made up about one-third of the S&P 500’s total return (12/31/2003 – 7/15/2019). On an annualized basis, that’s an extra 2.21% each year from dividends; not something we believe investors should overlook when considering portfolio construction.