An Economic Balancing Act
Fed policymakers are hoping to pause at some point to allow previous rate hike impacts to work their way though the economy. Whether a pause results in a pivot or is followed by additional rate hikes will depend on a balancing act between _________ and __________ risks.
What is inflation and what is recession?
The Fed has never lowered inflation by _% or more without triggering a recession.
What is 4%?
What are corporate balance sheets?
Though the ratio of international trade as a percentage of world gross domestic product since the early 1950s hasn't risen above five fold, it also isn't falling. Therefore, we believe the name of this trend has been exaggerated.
What is deglobalization?
Investment Idea: A Cautious View on Equities.
Rationale: Equity valuations are more reasonable, but earnings expectations remain too optimistic. Time is needed to assess Fed progress on inflation and better understand the potential depth and duration of the economic slowdown.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
Ultra Short-Term Bond (ETF, Fund)
Dynamic Global Bond (Fund)
Stable Value (CIT)
According to the Bloomberg U.S. Recessions Probability Forecast, as of 10.31.2022, what is the likelihood of a recession in the U.S. (in percentage terms)?
What is 60%
Three statistics were mentioned that illustrates the risk that the Fed’s monetary tightening will end in recession.
Fill in the blank for one of those statistics, below.
__ of the last 13 hiking cycles ended in recession in the United States.
0.84% as of 10.31.2022.
What is the 12-month default rate for high yield?
Europe’s heavy reliance on Russia for natural gas, for example, put its energy security at risk when the war in Ukraine sent gas prices soaring. Market forces can correct such imbalances if given time. Over the longer run, energy development could drive a massive global surge in capital spending on the transition from fossil fuels to renewable energy sources. This is the estimated amount of capital required for such a transition.
What is $100T?
Investment Idea: An Emphasis on Valuation and Quality.
Rationale: Stocks that do not fit neatly into growth or value buckets have been overlooked. Many companies in this middle category offer attractive growth at more reasonable valuations than can be found at either style extreme.
Although non-U.S. markets generally appear cheaper, the economic headwinds in these regions are more challenging. European and Chinese equities in particular are deeply out of favor, creating selective contrarian opportunities for active investors.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
Dividend Growth (ETF, Fund, SMA)
Overseas Stock (Fund, SMA)
All-Cap Opportunities (Fund)
International Disciplined Equity(Fund)
Equity Income (ETF, Fund, SMA)
Mid-Cap Growth (Fund)
Small-Cap Value (Fund)
From 2018 to 2022, which year experienced the highest number of rate DECREASES by central banks, globally?
What is 2020?
Past U.S. recessions typically have resulted in 15% to 20% earnings declines for the S&P 500 Index.
As of the end of November, what was the forward consensus estimates prediction for growth in earnings per share (EPS) for the U.S. and Japan over the following 12 months?
*Hint: The prediction may be overly optimistic
What is Mid-single-digit growth?
These have widened while default rates remain relatively low, enhancing their reward-for-risk proposition.
What are credit spreads?
Despite a turn toward stricter market regulation, political leaders, including President Xi Jinping, remain committed to a pro‑growth agenda for this country.
What is China?
Investment Idea: Bond Yields Are More Attractive.
Rationale: Higher interest rates and wider credit spreads have lifted yields in many fixed income sectors. While a slowing economy could further widen spreads, current yield levels provide a buffer against a rise in default rates.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
U.S. High Yield Bond (ETF, Fund)
Global Multi-Sector Bond(Fund)
Tax Free High Yield (Fund)
Municipal Suite
Floating Rate (ETF, Fund)
Global High Income (Fund)
Short Duration Income (Fund)
From 2018 to 2022, which year experienced the highest number of rate INCREASES by central banks, globally?
What is 2022?
This equity style group has historically outperformed it's riskier equity style group rival during high-inflation periods.
*Hint: Additionally, it appears historically inexpensive relative to its riskier equity style group rival.
What are Value stocks?
This sector accounts for a smaller share of U.S. high yield debt than in the past, which reduces default sensitivity.
What is the energy sector?
This is what much of China’s growth over the last three decades is attributable to but its era is coming to an end which is now making it an economic risk.
What is property development?
Investment Idea: A Slowing Economy Favors Long Duration
Rationale: The Fed hiking cycle isn’t complete, but it has covered much ground. Rates could be near a peak. Long duration Treasuries historically have performed well in recessions and could provide diversification as the economy weakens.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
Dynamic Global Bond (Fund)
Total Return (ETF, Fund)
QM Bond (ETF, Fund)
US Treasury Long-Term(Fund)
As of 9.30.2022, which region has experienced the highest year over year % change in their CPI?
What is Euro Area?
Name this equity market capitalization group whose earnings, on average, have recovered more quickly than a larger style group in past economic recoveries.
What are Small-Cap stocks?
Higher yields were mirrored in greatly improved valuations for both sovereigns and private credits, with many sectors selling close to, or below, their __-year historical medians as of late November 2022.
What is 15-year historical medians?
Investment Idea: Energy Security and “Re-Shoring.”
Rationale: Geopolitical tensions, decarbonization, and global supply chain restructuring are likely to catalyze capital spending in a variety of industries and countries. This should drive demand for raw materials and infrastructure.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
All-Cap Opportunities (Fund)
Real Assets (Fund)
Global Impact Equity (Fund)
Global Industrials (Fund)
New Era (Fund)
Latin America (Fund)
Investment Idea: Playing Selective Offense
Rationale: Small-caps have priced in a dire economic scenario and may offer upside when inflation and growth outlooks improve. Yields on high yield bonds are attractive relative to recent history and are supported by strong fundamentals.
Name one strategy that could be considered for this investment idea and respective rationale.
What is...?
Small-Cap Value (Fund)
Value (Fund)
U.S. High Yield (ETF, Fund)
Floating Rate (ETF, Fund)
Credit Opportunities (Fund)
Dynamic Credit (Fund