Nuveen’s CIO, Saira Malik, shares her key takeaways on the weight of the upcoming US election and how this is affecting markets. Saira also explores recent economic data and the impact this is having on credit investing.
US election and economic landscape
- President Biden’s exit from the U.S. presidential race adds to political volatility.
- If this news gives former President Trump a bump in the polls, that could provide a further boost to areas of the market that have been pricing in increased prospects for a Republican sweep in November, such as the financial and energy sectors. If the reverse happens, it could be a plus for more globally-focused areas.
- Fed watch and Fedspeak. Moderating economic data was accompanied by public remarks from a number of Federal Reserve Board governors. On balance, they conveyed that the Fed is “getting closer” to the point where a rate cut is warranted. With this combination of more dovish rhetoric and cooler data, markets are now pricing in a 100% chance of a rate cut at the Fed’s September meeting.
Also read: Sub-Debt. The Hottest Ticket in Town
Portfolio considerations
- Investment grade that makes the grade. With increased expectations for a sooner-rather-than-later start to the Fed’s rate-cutting cycle, now looks like an especially opportune time to consider extending portfolio duration by shifting some assets out of short-term bonds and cash, while also complementing those allocations with exposure to diversified credit.
- Below investment grade that’s a cut above. Senior loans and high yield corporate bonds continue to impress. Senior loans remain one of the highest-yielding asset classes across global fixed income markets.
- With cash offering a close-to-zero real yield, we think investors should consider extending duration and finding value in select fixed income markets.
You can read the full commentary here.
