Macro Outlook: Turn the Page
Portfolio Strategists Jack Janasiewicz and Garrett Melson offer their take on the Treasury market and interest rates, labor and consumption trends, and attractive market sectors in today’s macro environment.
- Volatility in the US Treasury market has reflected the belief that strong economic growth would make inflation rise, keeping interest rates higher for longer.
- Increased bond market volatility forced a “buyers’ strike” by investors who stepped back while waiting for greater clarity on market direction.
- The Federal Reserve (Fed) has shifted from the largest buyer of Treasuries to the largest seller, but price-sensitive buyers are picking up some of the slack.
- Expectations are now shifting across the yield curve, and if these trends continue, the Fed would consider cutting rates.
- The labor market has normalized, and is now consistent with the Fed’s target for 2% inflation.
- Payroll growth has normalized back to its pre-Covid levels, and the Fed doesn’t need to be hawkish any longer.
- Household balance sheets are in reasonable shape, with credit card delinquency rates normalizing for prime borrowers.
- Subprime delinquency rates are higher, but the lowest 20% of consumers account for only 9% of all spending so the negative impacts may be overstated.
- While leading indicators have been negative for months, they largely reflect the manufacturing side of the economy where inventories have still been drawing down after Covid. The services sector is generally doing well.
- The corporate credit market is offering attractive yields, both for investment grade and high yield. Again, the default rate is highest in the CCC credit range while BB and B are normalizing.
- US large cap growth has done well this year, with tech still outpacing the broad S&P 500® index.
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The views and opinion contained herein reflect the subjective judgements and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions are as of November 2023, and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.