This commentary touches on the passing of Corporate tax cuts during a period of historically high corporate profits and also discusses the relationship of the unemployment rate with future market returns.
Years of significant growth in the U.S. corporate bond market have been accompanied by a steady decrease in overall credit quality and a trend toward higher leverage. Close to $80 billion in U.S. corporate bonds currently rated BBB potentially could be downgraded below investment grade in 2018, according to our estimates.
Investors may want to consider taking a more cautious and selective approach to BBB nonfinancial corporate bonds, particularly those in the low BBB rated segment, where the risk of downgrades is higher and the room for error is lower.
That said, we find many compelling BBB bonds in the U.S. marketplace today. As a large active fixed income manager, PIMCO is in our view ideally positioned to manage the risks in the complicated universe of BBB bonds.
Despite an expensive market, economic risks are falling. Stay invested.
Although there are many superficial reasons to be enthusiastic that strong market performance can continue, most positives are overstated and many risks are underappreciated. In fact, today's investment environment entails such a high degree of uncertainty that most investors would be best served by simply minimizing their worst case scenario.
It’s tempting, and quite natural, to want to attribute strong performance in any given year to superhuman work ethic, insight, or talent. The fact is, our superb results this year reflect less on the value of our strategies, and more on the role of luck on short-term investment results. What made 2017 a perfect positive storm for certain multi-asset strategies? And what features make certain multi-asset strategies more likely to prosper in the years ahead? All this and a lot more insights in ReSolve’s 2017 Annual Review
Note: With today's release of December's Retail Sales and Consumer Price Index, we've updated this commentary to include the latest Real Retail Sales. Month-over-month nominal sales in December increased by 0.4% (0.35% to two decimals). Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, increased by 0.20%. The chart gives us a close look at the monthly data points in this series since the end of the last recession in mid-2009. The linear regression helps us identify variance from the trend.
Today's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 147.6, up 0.6 from the previous week and at another record high. Year-over-year the four-week moving average of the indicator is now at 2.19%, down from 2.46% last week. The WLI Growth indicator is now at 3.3, down from the previous week.
The Census Bureau's Advance Retail Sales Report for December was released this morning. Headline sales came in at 0.4% month-over-month to one decimal. Today's headline number was at the Investing.com consensus of 0.4%. Core sales (ex Autos) came in at 0.4% MoM. October and November figures were revised.
The Bureau of Labor Statistics released the December Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 2.11%, down from 2.20% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.78%, up from the previous month's 1.71%.
The Osterweis Total Return Fund (OSTRX) seeks to preserve capital and attain long-term total returns through a combination of current income and moderate capital appreciation. The fund invests primarily in investment-grade securities and employs tactical shifts in sector allocation, interest rate/yield curve risk and credit quality, attempting to capture return across credit, interest rate and volatility cycles. Its inception date was 12/30/16 and it is managed by lead manager Eddy Vataru.