2020 Midyear Outlook Podcast: Investing in a Changed World
2020 Midyear Outlook Podcast: Investing in a Changed World
Tim Paulson: Welcome to the Lord Abbett Mid-Year Outlook. My name is Tim Paulson, investment strategist at Lord Abbett. Today, I'm joined by some of our leading investment professionals.
Giulio Martini: Hello, I'm Giulio Martini, partner at Lord Abbett and portfolio manager for multi-asset strategies.
Kewjin Yuoh: Hi, this is Kewjin Yuoh, partner and portfolio manager of Lord Abbett in taxable fixed income, specially focused on liquid and securitized products.
Leah Traub: Hi, I'm Leah Traub. I'm a partner and portfolio manager in taxable fixed income focusing on currencies and global bonds.
Andrew O’Brien: Hi, this is Andy O'Brien. I'm a partner at Lord Abbett, and a portfolio manager in our taxable fixed income area, where I focus on investment grade corporate bonds.
Daniel Solender: Hello, my name is Dan Solender. I'm a partner and a director of the tax-free fixed income group.
Thomas O’Halloran: Hi, I'm Tom O'Halloran. I'm a portfolio manager-- of the innovation growth strategies and a partner of the firm.
Paulson: So let's try to make sense of these extraordinary times, starting with the question that seems to be on everybody's mind:
On one hand, you've economic data that seems terrible. On the other, risk assets continue to rally, seemingly defying a lot of this negative economic data. How can they diverge so sharply? How can, on one hand, we have terrible employment data, manufacturing, mounting debt; and on the other, risk assets seemingly shrugging [it all] off and possibly looking forward to newer highs? Giulio, can we start with you? Are markets telling us something about the possible timing and shape of a recovery? Or is there something else that's driving markets today?
Martini: As the economy shut down in March to deal with the health care crisis, we immediately had an unprecedented economic crisis on our hands.
In other words, the worst part of the recession was experienced almost immediately. Shutdowns in the economy affected households, businesses, and the public sector at the same time. Normally, businesses and people have eight to 12 months to adjust to the full extent of a recession. And this time, it came on almost immediately with full force.
And as a result of that, I think a sense of urgency developed and policymakers responded to that weakness with unprecedented agility and force.
So the Fed cut rates to just above zero almost immediately, supplied liquidity to keep markets afloat, freed up bank capital for additional lending capability, and teamed with the [U.S.] Treasury on nine separate credit facilities to support borrowing by households; small-, medium-, and large-sized businesses; state and local governments; and just an across-the-board set of credit programs.
At the same time, the federal government rolled out a comprehensive set of measures totaling just under $3 trillion, about 14% of GDP, to also give support to businesses of all sizes, households, state and local governments, et cetera.
Now, all of these measures, which are unprecedented in size and scope, haven't been perfect, but they've been creative and they've been timely. And I think the result of that was really to reduce tail risk in the markets that would come from an economy that was just going over a cliff without any bottom in sight. And they've done so by borrowing aggressively to really insulate the economy against the full negative impact of the shutdown to deal with the health care crisis.
And that's why I think the market has really rebounded from its lows when none of these programs were really in sight yet. Now, it's typical, of course, for the market to rebound before a recession ends.
And as we know, this recession is extremely deep. But it's also likely to be extremely short. And in fact, we're probably going to see the economy picking up again in June. So having the market bottom in March really isn't off in terms of timing compared to past recessions.
Now, meanwhile, how strong the economic recovery is going to be, and therefore how well the market responds from here, really depends on when we're going to be able to restore earnings to something closer to previous peaks. And all of that has yet to be determined.
Solender: I just can add that from the municipal bond side, Giulio is correct that the Federal government has provided some support, particularly with the original CARES Act. But what's interesting in municipals is that [the sector has] been recovering and the market is now positive for the year, and things are heading in the right direction. But it's done so without as much support as other markets.
You know, for example, the Federal Reserve has helped the money markets a little bit, but they really haven't helped the rest of the market as they've done with the taxable fixed income market. So the municipal bond market's recovered on its own with the expectation, and the Fed's starting to line some things up, but it’s not really getting involved deeply yet in the market.
Yuoh: If I could add some comments to complement what Giulio’s saying …
But I think the question is, is it too enthusiastic? And I have a couple of thoughts there, in the sense that it may be. We don't know exactly what's going to happen because of the nature of this crisis and what might happen with the second wave, as we head towards the fall.
But at the same time, there are several data points in terms of the Census Bureau coming out--the applications for new businesses have come back to levels that were established pre-COVID. [They have] a home base tracker, which tracks small businesses. And activity has been on a gradual increase since mid-April.
So the reopening, thus far, seems to go well. But we're early and we don't know what's going to exactly happen there. Tim, you asked, "Are there other things at play?" I would just offer this up, in the sense that when you look at or think about Fed support, monetary support: There's the tangible aspects with regard to something like QE or all of the purchase programs that they've put in place.
But there's, of course, the market impacts as well. We've seen some in credit spreads, but I'm specifically talking about volatility here. And what we've seen with regard to expected volatility in the markets is that we had a significant spike during this crisis. But we've fallen completely back to where we were pre-COVID, and near historical lows with regard to expected volatility.
That low-volatility environment that the Fed creates through transparency, forward guidance, perhaps even yield curve control going forward, creates that environment for a hunt for yield. It's been in place for 10 years, and there's no reason to expect that that can't be a driving force going forward. You could argue that valuations have been too tight relative to fundamentals perpetually because of that environment. And I think that will certainly be a factor going forward, as well.
Paulson: Right. So lots going on that’s driving markets, very forward-looking, a lot of aggressive actions from central banks [and the] U.S. Government. But this is not just a U.S. crisis; this is a global pandemic with global scope and lots of different countries experiencing this in different ways. What do we see in terms of countries that may be doing a better job of navigating this, or some that may be struggling? Are we seeing some regions? Certain countries? And what are the implications for the U.S. dollar? Leah, you could start us off, please?
Traub: You’re right that this pandemic has really been global, right? It's really affecting every single country that we invest in. But in different ways, and at different times.
So we're seeing some economies, and some countries, that got really hit very hard early, obviously China, where it, right, was one of the first. And we saw them completely stop economic activity, have lockdowns in place, really beginning in January and into February.
Now, as China started reopening in March, that was kind of when the rest of the world went into its more significant lockdown period, mainly in the U.S. and in Europe. And what this has been is a kind of rolling crisis, in that China started coming out of it. We're seeing some positive signs there on not only reopening, but also some actual signs of actual recovery in a number of areas.
We're also seeing that spread to other countries in Northern Asia. We're seeing Europe starting to come out of this as well. So Germany is a country that handled this crisis very well, both from a health perspective, and also from the economic perspective.
So China and Germany are two countries that have a lot of resources that they can bring to bear. They were in good fiscal positions coming into this. And they’re able to marshal those resources in order to get their economies back moving more quickly.
Now, other countries in Europe, such as Italy, are going to have a little bit harder time with that, right? Italy got hit very hard by COVID-19, and it was a little bit slower to close everything down. Now it's starting to reopen, but, of course, it's going to have kind of a lingering debt and deficit issue going forward.
Now, what's been very encouraging is the response that we're seeing from the broader European Commission, and, of course, from the ECB, in that it really seems like they're trying to provide some unprecedented level of support to all of the Euro-Area countries.
One are that we see kind of struggling immensely in this is some of the emerging markets. Now, [there are some countries] have been more vulnerable coming in, and that don't have the space to really deal with either the health or the economic impacts from a fiscal perspective. These are places that we could see some sovereign debt default or restructuring. They are places that have been badly hit and they're just going to have a harder time recovering.
In terms of the dollar, let’s go back to something that Kew said on the liquidity and solvency aspects. What we saw was during the crisis, was a rush into the U.S. dollar, right? Everybody wanted to have cash, really. And we saw a big spike up in the dollar.
Now, in May, we started to see the dollar weaken a bit as we've seen reopenings happen, and as we've seen more optimism on the recovery. But something that I want to bring to your attention to is really what's happened to global interest rates. And you can see that all of the countries have responded to this pandemic with massive amounts of monetary stimulus.
And we have the average central bank rate in developed markets now slightly negative as of the end of May.
And the average emerging market rate is the lowest it's ever been, at about 2.5%. And, really, what this is going to do is make it harder for emerging market currencies, in particular, to really have a sustained appreciation going forward.
It removes one of the main supports that emerging market currencies have had. Which is the higher level of interest rates going forward. So we still see the dollar as being more supportive relative to the emerging markets, especially those that are facing not only the growth problems but also the fiscal problems, as well.
And, really, within the developed markets it is going to be what happens with growth on the outside [that] is going to be the distinguishing factor, because everybody has interest rates very close to zero. So it is really is going to depend on how these countries are able to come out of this crisis-- and defeat it.
O’Brien: I know one of the long-running effects that we're going to see here is some stage of deglobalization. For many years we've had globalization, which has been driven by the idea that you want to manufacture your product or source your inputs from the cheapest place possible, wherever in the world that is-- because for many products, the cheapest place to manufacturer or source your inputs is not necessarily the place they get used. You end up with very long global supply chains.
What we've seen here is those supply chains can be fragile. The disruption caused by the virus [has put] those supply chains at risk. And companies are starting to think now that, "Maybe the right way to succeed is not necessarily to find the cheapest place to manufacturer my product, but find a way to make it robust, maybe source the product closer to where it's going to be used so there's fewer possible points of failure along the way."
So I think those are important elements: the deglobalization and the emphasis of strategic interests over strict efficiency are things that will have regional impacts going forward.
Paulson: So let's focus again on the equity markets. Headlines tend to be dominated by the performance of the S&P 500 Index. But that's not everything that's happening in the equity markets. And we’re seeing a big difference between small- and large-cap performance-- growth and value. Tom, what do you make of all of this? What are equity markets telling us about the shape of the recovery, or maybe looking beyond?
O’Halloran: Well, you have to start with the fact that we had a severe secular bear market in price. The S&P went down 35%. That's doesn't happen very often. Secondly, we have to take into account that this was a forced recession, almost a forced depression.
And so, we're going to bounce back off of this decline economically. The amount of time that it's going to take, and the pace and the vulnerability it has to outbreaks of the virus is going to make things very uncomfortable for all of us, probably, for the next couple of years.
But I think what's happening here is the market is saying, "We came into this crisis with a great economy, and very strong, tremendous innovation going on. We've shut down the economy for a couple of months to get a very bad virus under control. And look at what the tech industry did to tide us over. This never could have been done back in 2005, a mere 15 years ago. But now we have these powerful companies enabling us to continue commerce while we're in the midst of shutting the economy down. To get on Zoom video and interact with each other."
So the Cloud-- and the eCommerce, and the social networking companies got much more powerful in this downturn, in my opinion. And they will drive a change in the economy to a greater share of digital aspects to the economy.
One of the things I've talked about for a long time is that-- technology, the revolution of the brain, overcomes distance, space and time.
And it did that in flying colors in this pandemic. So looking forward, we're going to have a recovery. We will likely get back toward the level of activity that we were at coming into the crisis.
I don't think that happens until 2022, at the earliest. I think when we get there, the economy is somewhat different, maybe 5% to 10% more digital. And so I think there's going to be a lot of dislocations along the way. Some businesses are not going to remain solvent. Bankruptcies will be higher than expected, most likely. And there's going to be some big winners and some big losers coming outta this.
So-- I think that what the market is saying is that things are still very good in America. The economy is very vibrant, diverse, and innovative. And it just got stronger because of this crisis. And interest rates fell by 1% from already-low levels.
So I believe that we're going to continue with a slow economic recovery. Rates are going to stay low for a couple of years, at least, I think. And that the equity market will be making all-time highs sometime next year.
Martini: The virus is like a natural disaster. But it's not like a tsunami or an earthquake. Because the economy's capital stock is completely intact as this natural disaster takes place. And I think one of the interesting questions is whether the value of that capital stock is actually enhanced because of the application of all the digital technologies that Tom is talking about to that capital stock that can actually increase its productivity.
There's a very persistent, robust, long-term trend where earnings per share in the United States grow by about 6.5% per year. And every time we get thrown off of that trend by a recession, even a very deep downturn, like 2008-2009, earnings have bounced back to that long-term trend.
And I don't think the key is whether it takes a year or two years or three years to get back to that. What matters is whether that trend is intact, or whether the severity of this downturn and the debt that's been taken on to combat it, and the damage that's been done to some of the companies that won't recover, is bad enough to really lower that kind of normalized earnings trend. Or whether we're going to go back to it, and even beyond, or whether it may even accelerate. And if it's true that we're going to recover back to trend, then I don't think equities are expensive. And I don't think it's unreasonable at all that the market's bouncing back in response to the prospect of growth resuming.
O’Halloran: As examples of what Giulio is talking about-- applications of technology to the existing capital stock and the existing economy, just look at software and look at all of the new markets that are being created in software for online education, for critical event notification, for expense management, for human resources, for interaction with customers and employees, for the way we operate the telephone network now on the Cloud with the ability to combine voice with visual and other supporting documents. So you can just see the way the tech revolution is applying to many existing real-world situations and making them much better, much more efficient--leading me to be very optimistic as an equity investor.
O’Brien: But building on Giulio's point that what we saw here is that the capital stock of companies wasn't really damaged, and building on Tom's point that we really are seeing new ways for technology to develop, or technology to do more than you thought it could: I wonder what the effect is going to be?
Are we going to see a capital deepening where companies realize that, "The weak link in my business is actually the human beings, and if I can replace as many of them as possible with technology-- I don't really need the office, and I don't need all the other things that I thought I needed. Do I need all these people? Or can I automate and replace as much of that as possible and make my company even more robust?"
I think that could be very good for certain industries and for efficiency in certain companies. I'm not sure if that's good for the economy as a whole. I'm not sure if the individuals that had those jobs will find it easy to transition into something else. But those are certainly interesting possibilities and things that we should be talking about.
Paulson: There’s a lot to think about there. So let's rewind a little bit to the events of March and April. There was a lot of volatility: What was it about the markets, and particularly the bond markets, that prompted such an aggressive response from the Fed? And why were so many of those programs that they unveiled focused on short-term credit? Kew, you've dealt a lot with some of these assets that were struggling in price at the time. What can you share with us?
Yuoh: I think it's important to just make one comment about the environment that we we've been working in for the last 10 years and as a result of the last financial crisis 10, 11 years ago.
And that really is one where, as far as the market liquidity is concerned, dealer banks’ presence as market makers and as risk-takers in terms of balance sheet use stopped existing, right? Because of all the regulations that were put in place through Dodd-Frank, post Great Financial Crisis. And given how damaged the banks were, we found ourselves in a situation where banks had heavy capital requirements, and their risk-taking diminished significantly.
And so over the last 10 years, we've lived in an environment where it's been very much end-account-to-end-account liquidity. And that's all fine and good when things are going well, volatility is low and markets are stable. But then when you have an event like this, when you have every single end account doing the exact same thing because of the very focused nature of COVID-19, you find yourself with the liquidity that we found in mid-March.
The short credit markets obviously were a point of significant pain because as investors all looked for liquidity and cash, they looked to exit those instruments that were of the lowest principal loss. And that meant high-quality short credit.
And so, what we found was that the credit curve flattened significantly. When we say "the credit curve," we're talking about the risk compensation for short credit, which moved significantly more than it did for longer-maturity credit. And it harkened back to the financial crisis of 2008. I feel myself having to specify which "financial crisis," now, given what happened in March.
But it harkened back to those times. And within securitized products, you saw AAA-rated assets that were one to two years' maturity that were trading at spreads of 600 to 800 basis points. And so I'll just speak to the support that the Fed gave to the securitized products and leave the corporate side to Andy.
But as Giulio mentioned earlier, the response this time around was commensurate to the impact that COVID-19 had on the markets. It was immense. It was swift. And it was very easy for the Fed to dust off the playbook from 2008 and relaunch TALF for securitized products.
The signaling of the TALF reopening was enough to return liquidity to the marketplace, securitization markets are working, and spreads are now at a level where it would be doubtful that TALF would be utilized to a significant extent because the leveraged return just isn't as attractive as it was during 2009-2010.
But the power of that action is very important in terms of the signal that it sent, the signal that the Fed was going to provide whatever support that they needed to to foster the proper functioning of liquidity in the marketplace.
Traub: Just to tag onto what Kew was talking about, but more from a global perspective, is really something that was also different this time around than what we saw in '08 and '09 -- it was all obviously happening globally, right? And we saw a global liquidity crunch and a global desire to deleverage and to go into dollars.
And, really, the earliest sign, other than maybe in the commercial paper market, was in the FX market. We really saw a lot of disruption happening in what's called the cross-currency basis swap, which is basically a premium that foreign banks will pay in order to access dollars, in order to swap from dollars into Euros, or dollars into yen-- widely used by corporations, widely used by foreign banks.
And we saw a lot of pressure in this market in early March. And also in the interbank rates, so the LIBOR rates, so within dollar LIBOR, Euro LIBOR and yen. And, really, there was a big dislocation that happened in early March that really caused hedging costs to go haywire, and, it made it very expensive to access dollars through the FX markets.
The Fed stepped in pretty quickly to add the swap line. Now, there are swap lines that had been in place with places like the Bank of Japan that really got accelerated. And then also they added a lot more central banks to these swap lines. And that really helped to ease not only the currency markets and this basis market that I mentioned earlier, but also the interbank markets as well, and really helped to normalize demand for dollars.
Because by using [a] swap line, the foreign central banks can access the dollar and distribute it within their domestic markets, rather than kind of bypassing the FX markets.
Solender: I can add to this from the municipal bond side. I sit here and I listen to all the actions that the Fed took in other markets. And it's interesting, on the municipal bond side, how limited the Fed's response has been. You compare to 2008, when they did absolutely nothing. The market recovered without them.
And this time around, we started hearing the Fed was thinking about doing something, and we almost didn't believe it at first, because they've never shown any interest, any stances moving towards helping the municipal bond market. So what they did this time has been minimal so far, but it's picking up.
The first thing they did is this: The muni market has money-market securities. And prior to March, the yields on these money-market securities were under 0.25%. So they were tiny yields, but not that far from zero. They shot to be around 7%, 8%, 9% in the money markets, which is a lot for a municipal issuer to pay for daily liquidity paper. And the Fed came in and started buying them for money market funds, quickly dropping the rates back down.
So that part of the market, they did have a little bit of an impact. Here we are, towards the end of May, and so far they've done nothing other than that in our market. They're about to, potentially soon, do something. They created something called a municipal liquidity facility, which has never been created before.
So it's interesting that the municipal market, now it's positive for the year, it's recovering. You look at something like a two-year AAA bond-yield ratio to Treasuries: They were over 500% of Treasuries a few weeks ago. Which means an AAA muni was paying [a multiple of] the yield of a AAA-rated U.S. Treasury. In the credit crisis, we only got to about 220%. So this was huge.
Anyway, the main point is the Fed's getting involved, potentially. And it looks like if they go into action, it's really only going to affect the issuers who don't like the prices they are getting to borrow in the short-term markets. And we'll see how it goes going forward, but it's unprecedented that they're even getting involved.
Martini: In recent weeks we've heard some of the major officials at the Fed literally begging the federal government to continue doing massively stimulative fiscal policy.
And the Fed itself is really on the verge of a very important transition. Because what it's done so far is really to try and provide relief during a period in which the economy and financial markets are highly stressed, and prevent them from plunging even further.
But it has to make a transition now to stimulative monetary policy. And some of the things they're talking about would commit it to some very, very significant policies, and really lock those down for years to come. So the Fed may adopt a form of forward guidance on interest rates whereby it commits not to raise rates until the unemployment rate falls below a certain level, let's call it 4%, or until inflation rises above 2.5%.
It could commit itself to something called "yield curve control," where it really pins down interest rates along the yield curve going out two to three years. Which would really effectively commit it to expanding its balance sheet in an unlimited way.
And by tying down interest rates in the balance sheet, what the Fed is risking is that financial markets go back to creating some of the things that could create vulnerabilities in the long term: in other words, increasing leverage, increasing debt--which clearly was one of the issues behind this current crisis.
Paulson: Right. So lots of support from the Fed for Muni borrowers, for corporations. And, yet there's still a significant amount of concern around default risk in the muni bond market. We've seen this before, back in 2008-2009, recovered sharply. Is this time real, then? Or is the risk overstated once again?
Solender: We dropped a lot in March, and it really was purely a liquidity event. We had a lot of money flowing out of municipal bond funds. After 60 straight weeks of positive flows going into March, you suddenly had almost $30 billion in outflows in about a three-week stretch.
So our yields had to quickly rise to the point where they were attractive to buys in other markets. That gave the perception of something really, really going wrong in the municipal bond credits, when it was really a liquidity situation.
So fast-forward to where we are now: The market has come back. The investment grade market is positive. The lower-quality market has really started trending more positive the last few weeks. We still have to face the fact that the economy is not where it was a couple months ago. We are going through this severe downturn.
And there are huge issues. You have, at the state level, when the economy turns down like this, revenues drop and states keep giving numbers and projecting what's going into the future.
Looking forward, the economy's opening up. You know, the downturn is not going to be like this forever. As they get through the support they need, we're going to get to an environment where things are going to be better, and they're going to get back to normal. But, yes, the revenues for the year are going to be lower. They're going to be lower for a while. Budgets are going to have to be cut. They're going to need more federal support. More programs will be cut.
But you look around the country--and people forget that general obligation bonds are maybe a quarter of our issuance. The other three-quarters are revenue bonds. And those bonds hold up based on specific revenue.
So airports have plenty of cash to make it through this time. They're not being downgraded. Hospital systems are having some pressure. We're starting to have elective surgeries, and their profitability is coming back. Utilities, water and sewers, people pay those as essential services throughout time. Universities are going to reopen. There are a lot of great credits in our market that are going to be challenged during this time period.
Our outlook would be: minor downgrades, minor negative outlook changes. And
O’Brien: I think one thing that-- that makes this crisis different from 2008 is that in 2008, it was pretty clear that the problem was caused by the financial services industry.
The difference now is this isn't really something you can point the finger and say, "Another person caused this," you know? Maybe slightly different policies, a different health care approach, might have made the response, or the result of the pandemic a little less worse.
But it's nobody's fault. I mean, this is a virus, a non-human actor is to blame for this. And so as we look around and say, "Okay, well-- who's been hurt by this? The people that you're helping here are not the people who caused this." In a sense, all these municipalities that are suffering damage here are not to blame.
Certainly, some of them started off with worse credit, lower credit ratings, or under more financial pressure than others. And you're certainly seeing those people at the front of the line looking for help. But even those municipalities that didn't have great credit coming into this aren't to blame. And I think people understand that, and I think it's facilitating getting them help and getting them support to get to the other side of this pandemic.
Data on long-term U.S. earnings per share trends is as of May 29, 2020 and is based on a Lord Abbett statistical analysis of earnings data for the period 1880-2018, with a special emphasis on the S&P 500 Index since 1985. Source is the database maintained by Prof. Robert Shiller of Yale University (http://www.econ.yale.edu/~shiller/data.htm).
Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies.
A basis point is one one-hundredth of a percentage point.
The CARES (Coronavirus Aid, Relief, and Economic Security) Act is a $2 trillion stimulus passed by the U.S. Congress in March 2020, to blunt the impact of an economic downturn set in motion by the global coronavirus pandemic.
A credit spread is the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality.
The Dodd-Frank Wall Street Reform and Consumer Protection Act targeted the sectors of the financial system that were believed to have caused the 2008 financial crisis, including banks, mortgage lenders, and credit rating agencies.
ECB refers to the European Central Bank.
Earnings per share (EPS) representsa company’s earnings divided by the number of shares outstanding.
Fed and Federal Reserve refer to the U.S. Federal Reserve.
Gross Domestic Product (GDP): The monetary value of all the finished goods and services produced within a country's borders in a specific time period.
LIBOR is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.
Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment.
Securitized products are investment vehicles created through the the process of pooling financial assets and turning them into tradable securities.
TALF (Term Asset-Backed Securities Loan Facility) was a program created by the U.S. Federal Reserve in November, 2008 to boost consumer spending in order to help jumpstart the economy. This was accomplished through the issuance of asset-backed securities.
Risk asset describes any financial security or instrument that is not a risk-free. Risk assets generally encompass equities, commodities, property, and all areas of fixed income apart from high-quality sovereign bonds.
Yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. One such comparison involves the two-year and 10-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.
No investing strategy can overcome all market volatility or guarantee future results.
Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.
The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities.
The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
The CBOE Volatility Index, or VIX, is a real-time market index created by the Chicago Board Options
Exchange that represents the market's expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors' sentiments.
The U.S. Dollar Index is a measure of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The index goes up or down relative to the movement of U.S. dollar’s value versus other currencies.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
The credit quality of the securities in a portfolio are assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.
This broadcast may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.
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