The Role of Fixed Income – Part I of Our Interview with Greg Holst of JPMorgan

Five Things You Should Know

1. Equity Markets – rallied this week with U.S. stocks (S&P 500) up 1.14% while international stocks (EAFE) fell –.29%. 
2. Fixed Income Markets – are slightly lower this week with investment grade bonds (AGG) down –.47% and high yield bonds (JNK) down –.18%. 
3. Treasuries Rise – After an impressive jobs report last Friday, the U.S. 10-yr Treasury yield rose back above 4%, a threshold not reached since August. Markets are now pricing in less severe monetary action as investors start to consider a “no landing” scenario where the U.S. economy continues to grow, inflation reignites, and the Federal Reserve is forced to keep rates elevated. 
4. Fed Unfazed – Despite another month of hotter-than-expected CPI data comments from the majority of Federal Reserve officials suggest the Fed has no plans to continue on their path of rate cuts, however potentially at a slower rate than initially expected. Fed official Bostic was a notable outlier, stating he would be “totally comfortable with skipping a (rate cut) meeting.” (Source: MarketWatch) 
5. Key Insight – [VIDEO] This week we begin our two-part series with JPMorgan Executive Director Greg Holst on the role of fixed income for investors and how professional managers seek to help preserve and grow investors hard earned capital. [ARTICLE] With emotions ramping up as election day nears, we share some important historical facts around how markets behave around elections that will likely surprise you, and hopefully keep you on track to reaching your goals.

Insights for Investors

By Tim Mitrovich

The Role of Fixed Income – Part I of Our Interview with Greg Holst of JPMorgan

Every election year brings heightened nerves for many investors, and as many times as we encourage people to try to tune out the noise, and often manic partisanship when it comes to their portfolio (if not everything), many understandably struggle given the emotions that are swirling about. 

You’ve heard us say many times before, investing is about addressing the math and the emotion, and often unhelpful feelings and impressions that challenge investors. As with most things a good partner helps, a good plan helps, but sometimes you need BOLD facts and better understanding of history to snap you out of it and get you focused on what will actually help you preserve and grow your wealth. 

Consider the next few charts, all showing different versions of the same concept/principle – namely; don’t let elections scare you out of your investments! As you can see, for those that let their partisanship dictate how and when they invested, they would have a tiny fraction of what those that stayed the course would have regardless of their political affiliation. Furthermore, if there is a takeaway regarding election results, (see the third graphic below), it’s not that markets prefer Republicans or Democrats, but rather that they like it when they have to share power. 

How can this be when most of us are just sure what’s best for the country is what we believe? 

As the team at First Trust summarized so well, “The reality is that the market grows over time because companies consistently innovate, create, and drive increasing profits. It’s easy to let politics cloud our judgment, but history has shown that regardless of who is President or what policies are enacted, entrepreneurs and companies find ways to adapt and thrive within or around the rules. Innovation and creativity are the true engines of market growth over time.” (Source: First Trust Economics, Three on Thursday June 6, 2024) 

The real items that should have investors’ attention are an equity market still trading at lofty valuations, a tech index still below its mid-year high and continuing evidence of a rotation from growth into more value-oriented parts of the stock market along with recent rallies in fixed income (see our conversation with JPMorgan Executive Director Greg Holst on this topic above) and real estate. Consider that investment grade bonds have rallied over 10% in the last 12 months (see AGG performance 10/06/2023 10/08/2024 via Morningstar.com), and publicly traded REITS are up solidly as well over that time frame. 

We’ve heard firsthand numerous stories, especially after the last two elections, of investors selling off their portfolio when the Presidential election results don’t go their way. Investors that sold after a Trump victory in 2016 or Biden victory in 2020 missed out on remarkable gains in the years that followed. As you can see from the final chart below via Hartford Funds, in general, the apprehension and accompanying modest equity returns in the months leading up to an election have given way to solid gains in the months after the election as the uncertainty dissipates.  

The team at Hartford noted with respect to the graphic that “There are some notable exceptions. In 2008, the market sold off sharply due to the Global Financial Crisis. And in 2000, the market sold off by 4.1% from Election Day until December 12, when the Supreme Court handed down its ruling in the contested election between George W. Bush and Al Gore.  

Bottom line: Market returns are more dependent on the outlook for the economy than on the outcome of an election.” (Source: Hartford Funds) 

By all means, be passionate, and of course vote, just don’t let the emotions around an election year distract or dissuade you from sticking to your plan. 

As always, we are here for you and those you care about as a resource anytime. 
 
 

Have a great weekend,  

Tim and the team at TEN Capital 

Data, Just the Data

• U.S. Jobless Claims – Initial claims jumped by 33,000 for a total of 258,000 last week, the highest figure in 14 months. Ongoing claims also saw an uptick of 42,000 to a total of 1.861 million.  

• U.S. Consumer Sentiment – fell to a 5-month low in October according to the University of Michigan consumer sentiment survey. The survey highlighted consumers are becoming increasingly frustrated with higher prices and tighter wallets.  

• U.S. Small Business Optimism – saw slight improvement in September but below expectations. This marks the 33^rd consecutive month below the 50-yr average, with the uncertainty component reaching an all-time high. 

• Eurozone Retail Sales – rose 0.30% in August, beating expectations and marking the 5^th month of expansion over the previous 6 months.  

• U.K. GDP – rose 0.2% month-over-month in August after two consecutive months of flat readings.  Both services and production sectors saw growth.