by Robert M. Almeida, Global Investment Strategist, Portfolio Manager, MFS Investment Management
MFS Global Investment Strategist Rob Almeida offers a mid-year perspective on the global equity and fixed income markets.
EQUITIES
- Inflation cooling but fading pricing power and falling demand decelerates revenues.
- Rising wages and interest expenses keep costs elevated.
- Avoid companies with high fixed costs and undifferentiated products.
- Greater scarcity value rewards companies with durable cash flow streams.
- Quality and cash flows eclipse macro and style factors.
- Prefer non-US over US given lower profit vulnerability and more attractive valuations.
- Favor small caps over large as small benefits from higher capital spending.
BONDS
- With inflation falling, global central banks near the end of their tightening cycles.
- Elevated recession odds favor high-quality, long-duration fixed income.
- High credit quality and attractive valuation factors favor US municipals.
- Investment grade vulnerable amid recession risks and disappointing profits, but value in select credits.
- Rising US bankruptcies and financial stress increases high yield default risk; bank loans most vulnerable.
10 YEAR YIELD ESTIMATES*
- US Treasuries: 3.00% – 4.00%
- German bunds: 1.75% – 2.75%
- Japanese government bonds: 0.50% – 1.00%
*Estimates are based on the equity and bond markets described above. These estimates are subject to change and cannot be guaranteed.
The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice. No forecasts can be guaranteed.
