Michael Ball, CFA, FRM

Thanks to Paul Allen of Bloomberg for a discussion on fixed income this week. The market continues to watch the Fed's policy stance in the context of US labor markets and inflation data. While spreads are tight by historic standards, attractive yields continue to support allocation into #fixedincome, which offers both structural and tactical opportunities for investors. A slowing but resilient US economy, cooling inflation, trade policy clarity and supportive global monetary policy, with the Fed in "wait-and-see" mode, provide a constructive backdrop for fixed income. Diversification and total return opportunities exist in different pockets within global fixed income including #EMFixedIncome, #AsiaHighYield, local rates and securitized markets. https://lnkd.in/d3-efVzk

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New research from the Federal Reserve Bank of Dallas worth reading. Its analysis on the relationship between government debt and longer term interest rates quantifies what many of us assume. They see each percentage point increase of debt (gdp ratio) pushing up long term rates by 3 basis points. That might not seem too bad, but keep in mind how much debt interest costs are rising and can squeeze the rest of the budget. https://lnkd.in/eBzVz9w4

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Every #allocator should read this excellent research piece from Aspect Capital. It walks you through the four major regime shifts of the past twenty-five years -- dotcom, GFC, Euro crisis and the return of #inflation -- and gives you the blow by blow on how #trendfollowing performed. Niels Kaastrup-Larsen and I touched upon it briefly in a recent Top Traders Unplugged podcast. Key points: - The real money in the space is made during economic regime shifts: the world changes, assets reprice over a few years, most investors sit on their hands, #CTAs pivot and, BOOM, generate a decade of #alpha. - Even during great runs, strap in for drawdowns as mood swings can wrong-foot the space even as cracks are spreading in the ice. Three observations for allocators: 1. Allocators should view CTAs as a strategic allocation and stop trying to time the space. Statistically, it should be 20%+ of a portfolio. In the real world, 3% is the sweet spot: large enough to notice during the great periods, small enough to hide in the tall grass during ugly ones. 2. Alpha is in the big trades. With a few exceptions, Aspect points to large, sustained moves in oil, Treasuries, US large cap, EM equities, US dollar, gold, etc. This is why #hedgefund replication is so effective: it picks up on the signal (shifts in major markets) and invests in them directly and efficiently. 3. This year has been all about extreme geopolitical noise, but no economic regime shifts: no inflation spike, no recession, no real bond market tantrum, no sustained dollar collapse, etc. If you are NOT invested in the space, ask yourself: are you really confident that something big will NOT break over the coming few years? #etfs #ucits https://lnkd.in/eQRs_hw4

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The S&P 500 is hitting record highs despite trade uncertainties and expected growth slowdown. What’s driving this? Equity Strategist Abigail Yoder discusses the impact of resilient earnings and AI momentum in today’s Top Market Takeaways: https://bit.ly/3J6iC0E

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The likelihood of an interest rate cut at the next Federal Reserve meeting has increased following Chair Powell's signals at the Jackson Hole conference last week. As a result, the upcoming US employment report, scheduled for release on September 5, warrants closer attention also for equity investors. From a historical perspective, global equities have delivered an average annual return of 7.7% over the past 50 years. Interestingly, during periods of rising interest rates, this average increases to 8.9% per year. Conversely, during periods of falling interest rates, global equities have historically experienced an average annual decline of 3.6%.

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Stronger Earnings Than Expected As we reach the halfway mark of the Q2 earnings season, data across industries is pointing to a material beat versus expectations. With 32% of S&P 500 companies now reported, revenue is up 5.3% and earnings per share (EPS) have surged 8.3%. This significantly overshoots the initial 5% EPS growth consensus heading into the quarter and suggests that corporate fundamentals are on a stronger footing than anticipated. Read our full post https://lnkd.in/efH-kRxQ #Investing #money #Markets

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