Barclays
After The Tax Cut, Watch Out For This Hike
Analysts are still coming to terms with the impact of the big corporate tax cut, as shown by the dispersion still existing across S&P 500 EPS estimates in 2018. But they should also be watching the line item that’s contributed the most to the breakout in profit margins above historical levels: interest expense...
U.S. Municipal Bonds: Maintain Neutral
Their relative cheapness, combined with the prospect of higher tax rates, certainly makes Munis more attractive now. But we’ll wait for interest rate volatility and outflows to subside before turning bullish on Munis.
U.S. High Yield Corporate Bonds: Maintain Neutral
On the positive side, the fundamental picture is still healthy for most U.S. high yield issuers, and defaults are expected to be low. On the negative side, weakening inflation expectations is a divergence that bears close monitoring. We will exercise patience and wait for a better entry point.
Two Valuation Metrics Still Bucking The Norm
With many (but not all) of our valuation metrics in overvalued territory, we present two histograms from our forthcoming quarterly BenchMarks publication that make the case that stocks are cheap (well, almost).
U.S. Municipal Bonds: Maintain Neutral
The relative cheapness combined with the prospect of higher tax rates certainly makes us much more interested in Munis now. But we’ll exercise patience, waiting for the negative headlines to fade and interest rate volatility to subside before turning bullish on Munis.
U.S. High Yield Corporate Bonds: Maintain Neutral
Over the past few months we’ve seen the largest high yield bond fund outflow since 2000. We will exercise patience for now and wait for a better entry point.