The week in review
- Job openings declined to 7.910M
- Nonfarm payrolls grew 142K
- Wages grew 0.4% m/m (3.8% y/y)
The week ahead
- CPI
- PPI
- Consumer sentiment
Thought of the Week
Leaves aren’t the only thing falling in September. The Fed is gearing up to cut rates, which has the potential to alter the investment landscape, prompting investors to review their portfolio allocations. In a falling rate environment, it’s often wise to lean more toward fixed income, especially longer-duration bonds. But investors shouldn’t stop there. It may be beneficial to rethink what strategies they are using.
The fixed income market is a labyrinth compared to the relatively straightforward equity market. While there are about 5,700 publicly listed companies in the U.S., the bond market is vastly larger and more dynamic, with an estimated one million or more individual bonds in circulation and new issuances occurring regularly. To add another layer of complexity, fixed income indices usually capture just a fraction of the market. This week’s chart shows that the U.S. fixed income market is approximately double the size of the most commonly used fixed income index. By sticking with passive investing, investors may be leaving opportunities on the table. For example, securitized bonds, which tend to be heavily excluded from indices, currently offer yields of 4.5% on average, almost 1% higher than U.S. Treasuries.
This is where top active fixed income managers shine, often outperforming the index. According to Morningstar, core bond managers in the top decile achieved an annualized performance of 4.2% over the past 20 years compared to 3.5% for the benchmark. Investors should consider taking an active approach to fixed income investing to unlock benefits such as enhanced returns and better risk management.
Chart of the Week: Source: Bloomberg, FactSet, SIFMA, J.P. Morgan Asset Management. “Bloomberg indices” = Bloomberg U.S. Aggregate Index and Bloomberg U.S. High Yield – Corporate Index. Corporate bonds include high yield. Data are as of 1Q24. The figures
or MBS and ABS for the U.S. fixed income market are estimates due
to a lack of available data.
Thought of the week: Source: Bloomberg, FactSet, Morningstar,
SIFMA, J.P. Morgan Asset Management.
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Originally Posted September 9, 2024 – Weekly Market Recap
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Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.
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