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Macro Monitor

Oct 07 2020

Markets & Election—Any Clear Result Will Do

  • Oct 7, 2020

We believe the worst outcome would be a drawn-out, contested presidential election that ends up in the Supreme Court. We review historical market patterns under several election-result scenarios.

Oct 07 2020

Risk Aversion Index: New “Higher Risk” Signal

  • Oct 7, 2020

Treasuries’ ability to provide downside protection has weakened; a better way to play defense is probably through duration reduction within corporate credit (including both investment grade and high yield).

Sep 05 2020

A New Proposal To The Fed: Buy Bank Stocks!

  • Sep 5, 2020

While most economic numbers have been positive, the fly-in-the-ointment was the latest Senior Loan Officers’ Survey. Banks have tightened their lending standards across the board.

Sep 05 2020

Risk Aversion Index: Stayed On “Lower Risk” Signal

  • Sep 5, 2020

The breakeven rates capture the spirit of the overall risk rally and continue to provide support. The change in the Fed’s policy goals means it will remain accommodative for even longer.

Aug 07 2020

Textual Analysis Of Fed Statements—Always Artificial, Sometimes Intelligent

  • Aug 7, 2020

We geek it up a notch and use some of the popular text-processing techniques to quantify the hawkish/dovish sentiment of the latest Fed statement. Some human “coaching” is needed in every step of the process (hence the “artificial” part). But when these tools are used properly for carefully chosen tasks, they can be quite intelligent.

Aug 07 2020

Risk Aversion Index: Stayed On “Lower Risk” Signal

  • Aug 7, 2020

With “reopening” taking a pause, we expect global policies to remain accommodative even longer. Among fixed income, we like corporate credit, which includes both investment grade and high yield bonds.

Jul 08 2020

No Yield Curve Control? The Fed Spoke Too Soon

  • Jul 8, 2020

There has been chatter about the Fed implementing the so-called Yield Curve Control (YCC). Although the latest FOMC minutes suggest that YCC is not on the agenda for now, we believe the chance of YCC is probably much higher than the market currently anticipates.

Jul 08 2020

Risk Aversion Index: Stayed On “Lower Risk” Signal

  • Jul 8, 2020

While the market seems to have priced in a quick recovery, recent economic data has materially exceeded market expectations and provided support to the rally. Within fixed income, we maintain a favorable view toward investment-grade corporate bonds and we still recommend staying within range of the Fed’s fire power.

Jun 05 2020

The State Of The Stock/Bond Relationship

  • Jun 5, 2020

The latest action in rates is not what would be expected during a strong stock-market rally off a bear market low, but the constantly changing nature of the stock/bond relationship should not come as a big surprise. We propose a more refined four-state definition of the stock/bond relationship.

Jun 05 2020

Risk Aversion Index: New “Lower Risk” Signal

  • Jun 5, 2020

Our Risk Aversion Index fell sharply in May and generated a new “Lower Risk” signal. Within fixed income, we are turning more constructive on credit, overall, and maintain our favorable view toward investment-grade corporate bonds.

May 07 2020

Why Value Failed—Top-Down & Bottom-Up Views

  • May 7, 2020

From a top-down view, since 2003, Value’s performance has been much more closely tied to various asset markets and macro drivers. From a bottom-up perspective, we believe the change in Value’s migration behavior might be the key to its failure. We believe macro tailwinds and positive surprises are both necessary for a true Value revival.

May 07 2020

Risk Aversion Index: Stayed On “Higher Risk” Signal

  • May 7, 2020

While macro data has turned from “bad” to “less bad,” a lot of hope for a quick recovery in economic activity has been priced in. We recommend staying within range of the Fed’s fire power for the time being.

Apr 07 2020

A Cross-Asset Dash For Cash

  • Apr 7, 2020

March’s mad dash for cash didn’t stop with rates/credit/FX markets. Among equities, there was also a strong preference for cash liquidity. The market rewarded companies that had strong cash positions and punished those without—which explains why traditionally defensive styles actually underperformed.

Mar 06 2020

Double-Digit Yield & Double-Dipping Curves

  • Mar 6, 2020

As the coronavirus materially increases the odds of a recession, some important parts of the U.S. yield curve (10Y-3M; 5Y-2Y) double-dipped into inversion. The two prior episodes occurred in late 1989 and mid-2006 and, in both cases, a recession followed within 18 months.

Mar 06 2020

Risk Aversion Index: Stayed On “Higher Risk” Signal

  • Mar 6, 2020

We will remain cautious toward lower-grade credit until we see the peak in new coronavirus cases. It all comes down to the recession call and the coronavirus has significantly increased recession risk.

Feb 06 2020

Coronavirus—An Accelerator, Not A Catalyst

  • Feb 6, 2020

Chinese and Hong Kong markets are currently following the same script as seen during the SARS outbreak, but we caution against using S&P 500 performance as a guide for what is likely to happen this time around.

Feb 06 2020

Risk Aversion Index: New “Higher Risk” Signal

  • Feb 6, 2020

We are turning more cautious toward lower-grade credit and will likely remain so until we see the peak in new coronavirus cases.

Jan 07 2020

The Decade Of U.S. Exceptionalism & The Year Ahead

  • Jan 7, 2020

Two words sum up the past decade pretty nicely: U.S. Exceptionalism. The superiority of U.S. assets really comes down to the unique combination of growth (U.S. stocks), yield (U.S. bonds), and relative safety (both U.S. stocks and bonds).

Jan 07 2020

Risk Aversion Index: Stayed On “Lower Risk” Signal

  • Jan 7, 2020

While the overall near-term tone is still positive for risky assets, complacency seems widespread too. This tempers our enthusiasm to chase risky assets at this point.

Dec 06 2019

Slowdown Or Recession? No Confidence In “Confidence”

  • Dec 6, 2019

The ultimate question is whether the Fed’s recent “insurance cuts” are enough to overcome uncertainties about trade talk—and the upcoming election—to avert a recession. We updated our “Slowdown vs. Recession” study to see where we stand now. The bottom line is: It’s too early to rule out a recession.