1. By pausing rate hikes and slowing quantitative tightening, the Federal Reserve has supported equities and other risk assets; valuations have since moved back to fair territory after the January rally. This chart illustrates how the Fed’s policy reactions have corresponded with the direction of equity markets.
2. The fourth quarter provided an excellent opportunity to add credit exposure as markets became too aggressive in pricing in recession concerns. Supportive technical indicators and higher yields suggest credit has further room to outperform.
3. Downward pressure on rates caused by a more dovish Fed and weakening global growth is being offset by continued balance sheet runoff and moderate growth in the U.S. Rates are likely to be rangebound in the near-term.
4. A strong housing market coupled with a rangebound outlook for interest rates are supportive of an allocation to mortgage pass-throughs.
5. Bullish sentiment, yield carry, and valuation data suggest now is the time to hold an allocation to select non-core fixed income sectors, such as emerging markets.
The source for all charts is Bloomberg.
The source for all charts is Bloomberg. To view Sage’s February Equity Outlook, click here.
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