(This transcript has been edited for clarity)

03:29

Komson Silapachai: Thank you for joining us for this edition of the Sage Market Update. Today we’ll be going over the economic picture, the Fed, as well as our views on Fixed Income. The global economy remains in expansion, but we’re seeing signs that we’re near the end of the business cycle, especially in major economies outside of the U.S. The slowdown in China is at the epicenter of this, as exports in Asian countries have collapsed in recent months, which is typically a bellwether of growth in that region and global growth in general. The U.S. economy, however, is on good footing. The household sector remains the engine of economic growth in the U.S. Household balance sheets are strong, and the job market is tightening both in terms of job growth and rising wages. All those data point to a strong consumer. Now on the other hand, the corporate sector is showing signs of weakness. Coming off of two years of stellar earnings growth, U.S. corporate earnings are expected to turn negative for the first quarter.

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Let’s move onto the Fed. The FOMC remains hypersensitive to monetary tightening, its effect on financial assets, and potential flow-through into the real economy. At the beginning of the year, Powell and other Fed officials started to communicate a message of flexibility to evolving negative market conditions, which could include both pausing rate hikes and slowing of the Fed balance sheet. Expectations were very high for January’s Fed statement and press conference. But Powell ended up more dovish than the market’s already high expectations. He stressed patience in the Fed’s approach, and more importantly, explicitly mentioned that the Fed was prepared to adjust balance sheet policy in response to economic and financial market environment. Fed policy that served as a headwind to growth and financial assets in the fourth quarter of last year is now out of the way.

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Given the late stage of the cycle and the easier financial conditions due to a patient Fed, we believe that the current environment is favorable for fixed income investors. Rates should remain capped and could move lower depending on incoming economic data and global central bank response. We still think corporate credit provides good risk/reward as demand for high-quality fixed income has resumed in full force thus far this year. Thank you for joining us, until next time, good luck.

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