Our latest views on data, trends and events influencing the markets.
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Midway through second quarter the Federated Hermes forecast for several key indicators appears on track. These include 2024 estimates for real GDP of 2.6%, core CPI at 3.3% and core PCE of 2.8%. Consumers are telling us that in spite of solid jobs and wage data, run ups in housing, food and energy are making it hard to keep up. The Federal Reserve still has plenty of work to do. Consequently, we see a fed funds rate still at 5% at the end of 2024, and 10-year U.S. Treasury yields and the S&P 500 Index about where they are now.
Inflation reports and jobs remain front and center. A busier data week includes several Fed speeches, consumer inflation expectations Monday, PPI, Redbook and Household debt Tuesday, mortgages, retail sales and CPI Wednesday, building permits/housing starts, import/exports, jobless claims and industrial/manufacturing production Thursday. Our strategists and portfolio managers cover the latest geopolitical, market and economic trends in our Insights section.
What
What
May 13, 2024
Weekly
October 2022
Additional resources
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Inflation dashboard
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Election Watch 2024
Our fixed-income taxable multi-sector portfolios are underweight high yield and commercial mortgage-backed securities (CMBS). We are overweight U.S. Treasuries, agencies and MBS, and emerging markets and neutral on investment-grade corporates. Tax exempt munis are attractive for investors in the top tax brackets in non-qualified accounts, despite currently rich ratios to Treasuries. We hold a slightly long tactical duration position and are positioned for a longer-term steepening of the yield curve.
Fixed income
Domestically, we continue to prefer defensive, dividend-paying stocks and are slightly underweight rate-sensitive large growth stocks. We’re overweight small-cap growth and large-cap value. Outside the U.S., we’re overweight and constructive on international large-cap and emerging markets.
Europe began to rebound from contraction in April, with Germany growing 0.2% in the first quarter and the eurozone as a whole growing 0.3%. Inflation remained largely subdued in the euro area in April. The European Central Bank’s (ECB) resolve to remain data dependent may potentially lead to a slower rate cut trajectory than is currently priced into markets. The Bank of England (BoE) is still expected to reduce interest rates by 0.25% in August, but if the recent PMI trend were to translate into a higher GDP than current, the BoE may also be forced to cut back its trajectory on monetary easing. Inflation continues to soften across all major emerging market (EM) economies and the broad outlook continues to be positive despite recent moves up in many commodity prices. China, India (and the U.S.), all with GDP growth currently shy of 2%, are leading other large economies significantly.
Market capitulation on expectations for interest rate reductions this year continued in April with speculation expanding to the possibility of a rate hike. Federal Reserve chairman Powell pushed back in his May 1 FOMC meeting comments as far as a hike, but also acknowledged that the Fed is no closer to easing. The U.S. economy has remained strong by most measures, with buoyant consumer spending, strong labor markets and inflation that remains too high for the Fed to execute a pivot. An unexpected drop in GDP growth did little to alter the new “no landing” narrative of continued growth and higher inflation. Stock and bond markets have been choppy, but it’s possible that both may benefit from the Fed’s clarity on a hold or ease approach and what appears to be a resilient economy.
Economies
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December
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Job Openings and Labor Turnover
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Emerging Markets
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Consumer Price Index
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Federal Open Market Committee
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Global Financial Crisis
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Eastern Daylight Time
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Mortgage-Backed Securities
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Standard and Poor's
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Institute of Supply Management
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United States
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Emerging Markets
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Personal Consumption Expenditures
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Automatic Data Processing
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Mortgage-backed Securities
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Bank of England
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European Central Bank
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Purchasing Managers Index
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Emerging Markets
U.S. economy
International economy
U.S. Equity
Positioning
Until recently, international equity markets had been thriving on the prospects of lower interest rates, more robust economic activity, and declining inflation. In April, this goldilocks scenario for risk assets turned into a perfect storm as ‘stagflation’ began to enter the vernacular of investors across developed markets. The MSCI World Equity Index registered a 3.85% decline which erased nearly half of its 2024 gain. London’s FTSE index rose in April, but other European indexes as well as the Nikkei fell on the month, with the MSCI All Country World ex USA index also lower. By comparison, emerging market equities managed a slight gain for the month.
The lengthy rally in U.S. equities reversed course in April as investors worried about sticky inflation and the implications for the future course of rates. The S&P 500, the Dow and the Nasdaq each posted declines on the month of -4.16%, -5% and -4.41% respectively. Each remained positive year-to-date in spite of giving up substantial ground. On a sector basis, Utilities, Energy and Consumer Staples led outperformance versus the S&P 500, while Real Estate, Information Technology and Health Care underperformed the most.
International Equity
In the U.S., 10-year Treasury yields drifted higher over the month, rising from 4.2% to 4.69% as stocks and bonds resumed their correlation flirtation. Inflation readings continued to cause investors to postpone rate-cut expectations, with the fed futures market adding to hike bets and pricing a first interest rate cut as far out as November. The Bloomberg US Aggregate index dropped from -0.78% to -3.28% year-to-date in April. Treasury market momentum remains bearish, but we believe the market may be getting near oversold with a 15-25 basis point retracement possible.
Positioning
Source: FRED®, U.S. Treasury, Bloomberg
As of 3/29/2024
5.31%
5.49%
5.46%
5.38%
5.03%
1.28%
5.22%
Short-term yields
SOFR 30-Day Avg
1-month T-Bill
3-Month T-Bill
6-Month T-Bill
1-year T-bill
MMDA Avg
First Tier IS Avg
Liquidity
iquidity
Source: Bloomberg
As of 3/28/2024
-0.78%
-2.08%
1.47%
-0.09%
Total YTD Returns
U.S. Aggregate
Global Aggregate
U.S. Corporate High Yield
S&P Municipal Bond
Fixed Income
As of 3/28/2024 10.56%
5.18%
9.11%
5.78%
2.37%
Total YTD Returns
S&P 500
Russell 2000
NASDAQ COMP
MSCI EAFE
MSCI EM
Equities
Equities
Percentages as of 3/31/2024
Source: Trading Economics.
Jobless Rate
3.90
6.40
5.30
2.60
3.90
Inflation
3.20
2.60
0.70
2.80
3.40
Interest Rate
5.50
4.50
3.45
0.00
5.25
GDP QoQ
2.10
0.30
0.80
1.50
0.20
GDP Growth
3.40
0.00
1.00
0.10
-0.30
Country
United States
Euro Area
China
Japan
United Kingdom
Macro Dashboard
Economies
Economies
Liquidity
Fixed Income
Equities
Economies
May 2024
Monthly
While money market yields are compelling, maintain a bias to lengthen duration.
Take a balanced approach to credit due to tight valuations but a stable economic environment in the near term.
Take a more balanced view on fixed versus floating rate securities given current valuations.
Relative to longer-term fixed income, the 0-3-year part of the yield curve is attractive. Three themes are guiding our investment views in the space:
Positioning
Inflation is staying stickier than investors are likely hoping, and even the Federal Open Market Committee said in its April/May meeting statement that “…there has been a lack of further progress toward the Committee’s 2% inflation objective.” Fed futures contracts are currently showing expectations that the first cut in the target range of the federal funds rate won’t come until November. This bodes well for liquidity portfolios which continue to take advantage of elevated yields. However, investors interested in total return opportunities may be looking to extend durations prior to the first cut. As expected, the Fed announced it would taper the amount of Treasurys rolling off its balance sheet by lowering the monthly cap from $60 billion to $25 billion starting in June. It kept the monthly cap for maturing mortgage-backed securities at $35 billion.
Equities
Fixed Income
Liquidity
Economies
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Chief Information Officer
Economies
Liquidity
Fixed Income
Equities
Economies
Liquidity
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United States
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Mortgage-Backed Securities
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Commercial mortgage-backed securities
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United Kingdom
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Gross Domestic Product
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Emerging Markets
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Emerging Markets
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Year to Date
Fixed Income
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Gross Domestic Product
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Emerging Markets
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Silicon Valley Bank
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Emerging Markets
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United States
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Emerging Markets
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United States
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United States
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Year-to-Date
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Standard & Poors
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Standard & Poor's
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Earnings Per Share
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Price-to-Earnings
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United States
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United States
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United Kingdom
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Personal Consumption Expenditures
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United Auto Workers
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Gross Domestic Product
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United States
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United States
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Federal Open Market Committee
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United States
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Producer Price Index
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European Central Bank
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third quarter
U.S. fixed income
International
International bond markets and the U.S. dollar exhibited the same pricing dynamics that had already taken form in the first quarter. As measured by the Bloomberg U.S. Dollar Index the USD gained another 1.65% in April, while the Bloomberg Global Bond Aggregate Index suffered a -2.52% total return loss. A substantial portion of the loss was attributed to USD appreciation against other developed and emerging market currencies.
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Organization of the Petroleum Exporting Countries
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Federal Open Market Committee
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Federal Open Market Committee
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European Central Bank
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International Monetary Fund
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European Central Bank
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Mortgage-Backed Securities
Positioning
Fixed income
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Union Bank of Switzerland
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Investment Grade
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Capital Expenditures
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Emerging Markets
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Morgan Stanley Capital International
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Personal Consumption Expenditures
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High Yield
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Commercial Mortgage-Backed Securities
Percentages as of 3/31/2024
Source: Trading Economics.
Jobless
3.90
6.40
5.30
2.60
3.90
Inflation
3.20
2.60
0.70
2.80
3.40
Interest Rate
5.50
4.50
3.45
0.00
5.25
GDP QoQ
2.40
0.30
0.80
0.70
0.10
GDP Growth
3.40
0.00
1.00
0.10
-0.30
Country
United States
Euro Area
China
Japan
United Kingdom
Macro Dashboard
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Gross Domestic Product
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Gross Domestic Product
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United States
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Artificial Intelligence
Read our Fixed Income committees’ current views and positioning >
Euro and U.K. rates markets are off slightly year-to-date as markets remain stuck between growth fundamentals still not looking enough like a recession is imminent and inflation continuing back to target. PMIs in services and manufacturing have come in stronger in the U.K. and in Europe manufacturing PMIs recovered while services were very marginally lower than December, but both sub-fifty. Weak China growth continues to point to a difficult growth outlook, for Germany in particular, with both reduced demand for industrial imports and competition in the autos space weighing on future growth prospects.
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December
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United Auto Workers
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Overweight
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Probability Risk and Impact System
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Johnson & Johnson
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National Association of Home Builders
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National Federation of Independent Business
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Organization for Economic Cooperation
and Development
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Earnings Per Share
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Bank of England
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United States
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Gross Domestic Product
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Bank of Japan
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Standard & Poor's
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Standard & Poor's
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United States
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Morgan Stanley Capital International
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Europe, Australasia, and the Far East
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Gross Domestic Product
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Purchasing Managers Index
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Federal Reserve
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fourth quarter
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Bank of Japan
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Purchasing Managers Index
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Quarter over quarter
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Producer Price Index
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Consumer Price Index
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Kansas City
Consumers could be happier…
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Institute of Supply Management
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Job Openings and Labor Turnover Survey
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Federal Open Mark
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United Kingdom
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United States
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Consumer Price Index
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Artificial Intelligence
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Consumer Price Index
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Standard and Poor's
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Bank of England
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Bank of Japan
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Bank of England
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Personal Consumption Expenditures
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Federal Reserve
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Mortgage Bankers Association
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Financial Times Stock Exchange
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United States
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United States
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United States
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Gross Domestic Product
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Consumer Price Index