Madison Investments

As the Fed’s tightening cycle nears its end, how should investors navigate #FixedIncome markets? Head of fixed income, Mike Sanders, offers an outlook on bonds and key considerations for portfolio positioning. https://lnkd.in/gGNJ8gdz

Head of International Equity, Thomas Tibbles, shares his view on the Japanese market and whether the performance seen over the last year can continue. Watch the full interview here: https://lnkd.in/gmxfPdG9

Cyclical segments of the market accelerated last week as a combination of Fed speak and the softer CPI print cemented market anticipation for the first interest rate cut to occur in September (>90% probability). • This rapid reversal in leadership is reminiscent of the strength that the then-laggards experienced in November and December of last year on the presumption of lower rates sooner at that time. • While lower interest rates should undoubtedly benefit cyclical companies, we believe it’s prudent to ask whether the economic backdrop has changed in a material way. • Provided we believe we’re in a lower growth environment, this doesn’t bode well for the sustainable outperformance of cyclical companies, regardless of when the first interest rate cut arrives. Read more from our Multi-Asset Solutions team: https://lnkd.in/gNqKy8xP

The job market appears to be softening, Fed Chairman Jerome Powell testified before the House and Senate, and inflation appears to be moderating. Read the Reinhart fixed income team’s Week in Review to understand what this means for markets: https://buff.ly/3S16tf6 Subscribe to Week in Review: https://buff.ly/3SqpeGJ

With markets having already priced in a soft landing scenario, Head of Fixed Income Mike Sanders shared with MarketWatch that investors should focus on the reason behind the Fed’s interest rate cuts, not the timing. Read the article: https://lnkd.in/g_AmRRPX

Attempting to connect the labor market to the health of the broader economy, many have pointed to the Sahm Rule, which indicates the economy is in a recession if the 3-month moving average of the unemployment rate is 0.5% above its lowest level in the last 12 months. Our Multi-Asset Solutions team offers insights on this topic: https://lnkd.in/gF_t4wUV • The Sahm recession signal has not been triggered - the Sahm Rule sits at 0.43% today, indicating the economy is not in recession. • A different approach to connecting the labor market to the health of the broader economy is to track the year-over-year change in the three-month moving average of the number of unemployed. Once this measure surpasses 10%, which it did in April, and has remained there ever since, a recession has historically followed.  

Last week’s presidential debate brought various political outcomes back into focus for the markets. Read what’s top of mind for our Multi-Asset Solutions team: https://lnkd.in/g-zuxkFQ • India and Mexico have already held elections this year that drove significant volatility in their equity markets. • It's also a busy election year in Europe, with the first of two French elections taking place over the weekend and voters in the United Kingdom set to hit the polls on the 4th of July. • We anticipate that US equity market volatility is unlikely to remain subdued as November approaches. • While we can analyze the market implications of both candidates based on their policy decisions taken over the past eight years, we believe drawing forward-looking conclusions is misplaced. • Rather, we believe it is important to keep the long-term in mind. Understanding where we are in the business cycle will be more consequential than who is in the White House.

Key inflation and economic indicators for the month of May were released this week. Reinhart’s Fixed Income team share their thoughts on what these metrics could indicate for future Fed rate cuts. Read the Week in Review here: https://buff.ly/3XJUQwt Subscribe to Week in Review: https://buff.ly/3SqpeGJ

Are bonds once again serving as a diversifier in a portfolio, or is there a risk of another event like 2022 where both bonds and stocks experienced significant negative returns? Head of Multi-Asset Solutions, Patrick Ryan, joined us for our monthly interview series. Find all of his insights here: https://lnkd.in/gTJvJdFB

Given how long the strength in the dwindling number of mega-cap stocks has persisted, some interesting case studies have come to light. • The S&P 500 Technology sector has produced an impressive return of nearly 28.8% this year (as of Friday’s close), while the two largest ETFs that are built to provide exposure to the sector have lagged by an unusually large margin, returning 19.5% and 18.7% so far this year. • Driving this return differential is a diversification rule that states the combined weight of companies with a weight of more than 4.8% cannot exceed 50%. As such, ETFs tracking the Technology sector are not purely market-cap weighted but instead constructed and constrained to their diversification limits. • The underperformance of the two ETFs can be largely attributed to an underweight to Nvidia, which was roughly half of the 10.6% weight it represented in the market cap-weighted index coming into the year.  Read more: https://lnkd.in/grYTkDiN