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Economic Insights

In this podcast, Chief Investment Officer Rob Lee looks at key themes for the coming months.

Transcript

PODCAST 07/24/2018 2018 Midyear Investment Outlook

Welcome to The Investment Conversation, Lord Abbett's ongoing podcast series.

VO: Hello, this is Will Andrews, digital media editor for Lord Abbett. What might the rest of 2018 hold for investors? To find out, we recently gathered five of our investment leaders for a roundtable discussion on the midyear outlook. Visitors to lordabbett.com can view related articles and videos at lordabbett.com/midyearoutlook.

VO: We'll start off with a preview of major themes for the second half from Robert Lee, Lord Abbett's chief investment officer:

Lee: I would say good professional investors generally do not think just in the base case, what's going to happen in the next six months. The world is nuanced and complicated. We tend to think in probabilistic, expected value scenario-based ways.

So one key thing to focus on is monetary policy. Is the Fed [U.S. Federal Reserve] ahead of the curve or behind the curve on inflation? Is it taking the punch bowl away from the party too quickly? That's one key issue.

Second key issue is fiscal policy. We had big tax law changes that affected both the individual side and the corporate side. There are open questions on the effect of all that. The first is, usually when you get fiscal stimulus, it happens during a recession or economic weakness.

But this time it's been pro-cyclical. That is to say, the labor markets are tighter. The economy is growing. It's an open question as to whether this will lead to inflation and whether the effects will be short-term and/or longer term. There's a lot to be said there. And then the third thing I would point to that's very relevant for the next six months is trade policy.

That means everything from withdrawing from the Trans-Pacific Partnership to the NAFTA negotiations to Brexit and the trade negotiations in Europe and the issues and trade negotiations between the U.S. and China. All of those I think are going to be with us over the next six months.

VO: While macroeconomic conditions have remained favorable in 2018, Lee had some words of caution:

Lee: So far we've had very contained, pretty stable inflation and inflation expectations within a pretty reasonable range. So, so far, so good.

The one thing I would add though is, investors shouldn't get complacent here. At the risk of stating the obvious, we're in an interesting place with monetary policy. We ballooned a balance sheet from less than a trillion dollars to about $4.5 trillion, and now the Fed is reducing the balance sheet. So this is an experiment that hasn't really been tested in the U.S. in a long time, maybe ever.

The same thing with Fed hikes. We've had Fed hike periods, but juxtaposed with fiscal stimulus, the tax law changes, which I think are meaningful and substantive, the combination of those two, the pro-cyclical fiscal policy plus the Fed hikes, make things an open question.

VO: That's it for this edition of The Investment Conversation. As always, you can access a full range of investment commentary and analysis at lordabbett.com. Thanks for listening.

IMPORTANT INFORMATION

Investing involves risk, including the loss of principal. The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities. Investments in foreign or emerging market securities, which may be adversely affected by economic, political, or regulatory factors and subject to currency volatility and greater liquidity risk. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy.

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 views and opinions expressed by the Lord Abbett speaker are those of the speaker as of the date of the broadcast, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. This material is not intended to be relied upon as a forecast, research or investment advice. It is not a recommendation, offer or solicitation to buy or sell any securities, or to adopt any investment strategy. Neither Lord Abbett nor the Lord Abbett speaker can be responsible for any direct or incidental loss incurred by applying any of the information offered.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

This broadcast is the copyright© 2018 of Lord, Abbett & Co. LLC. All Rights Reserved. This recording may not be reproduced in whole or in part or any form without the permission of Lord Abbett. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.

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