(This transcript has been edited for clarity)
Total time: 4:01
Komson Silapachai: Thank you for joining us for this edition of the Sage Advisory Podcast Market Update. This is Komson Silapachai, vice president of research and portfolio strategy. Today we're going to talk about our market outlook in July 2019. Economic readings continue to register a global economic slowdown. Overseas economic weakness, primarily in the largest economies of China, the Eurozone, and Japan, is starting to seep into U.S. data. Now the soft patch in the U.S. economy is now focused on the industrial activity and manufacturing activity. The consumer remains healthy for now, although we're seeing a little bit of a deterioration on a year-over-year basis in measures as retail sales and consumer confidence.
0:41
Now, the magnitude of central bank accommodation, on the other hand, has been overwhelming. In response to the slowdown. The Fed is expected to cut rates, possibly once, maybe a 50-basis-point cut here in July, and four times in the next 12 months. So the wave of easy money is on. You know, key central banks outside of the U.S. are expected to ease as well – the Eurozone, Japan, as well as China. And so this overwhelming monetary response to trade uncertainty, as well as the growth picture not being truly recessionary, provides further support to easier financial conditions, as well as financial assets, ultimately. And so we see continued demand for these assets, namely equities. And in fixed income, we can see continued demand for U.S.-based fixed income, because that's really the last bastion of yield globally, in terms of high-quality bonds. And so the coordination of central bank easing should continue to support risk assets like equities.
1:38
And we think in fixed income, you really facing a trifecta of slow growth, a dovish central bank policy globally, as well as the lack of global yield. You know, 45% of international bonds are now in negative yield territory. And so if you're looking for yield, your liabilities, let's say you're a retiree, you still need to earn “X” percentage per year, and that doesn't change. You know, I think that the last bastion of really high-quality yield is in is in the U.S. And so we're going to see continued demand here for the U.S.
2:09
And so how does that translate into our strategy? You know, our strategy is just to carry on within fixed income. You know, we're not playing for a spread compression. We think that credit spreads are at a pretty low level. But we do think that they're going to remain stable here, given the central banks’ support. And so we're overweight spread sectors, such as corporate bonds, mortgages. We think that's been attractive lately, given its underperformance due to lower rates. As well as in our Core Plus Strategy, we're long high yield and preferred. So we actually think that these kind of non-core fixed income will continue to do well. Within inequities, we recently added cyclical sectors, as those have underperformed defensive sectors over the past 12 months, even with this rally to start 2019. And that's all I have for you today. If you have any questions, please don't hesitate to contact your Sage representative.
3:05
Disclosures
Sage Advisory Services is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. This podcast is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.
