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More Income in Fixed Income

The bond market in 2022 has been turbulent and the negative total returns have been some of the worst experienced by fixed income investors.  As a result, a substantial amount of pessimism has been created for the asset class so far this year.  However, a reason for optimism has also been created for fixed income...
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The shelter component of the Consumer Price Index tends to track home prices, and housing related data suggest home prices are facing several headwinds.

The Consumer Price Index (CPI) made a new cycle high in May, increasing at 8.6%.  Shelter is the largest overall category in the CPI (32%) and Owners’ Equivalent Rent (OER) is the largest component of the shelter category (24%).  OER is an attempt to capture homeowners’ housing consumption by calculating what they think they could...
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Consumer spending plays a large role in the U.S. economy and current data suggests the health of the consumer is deteriorating, which is a negative headwind for the overall economy.

Consumer spending has been equal to 65-70% of U.S. GDP since the mid-1990s. Source: Macrobond. This means that the health of the consumer, and their ability to continue spending, has a large impact on the growth of the overall economy.  Many consumer related indicators are heading in a negative direction. Consumer incomes on a real...
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Labor market data is starting to show signs of weakening which often occurs towards the end of an economic cycle when the corporate sector has to readjust their cost structure to reflect the new economic environment.

Labor market data is often one of the last economic indicators to decline as companies often wait to determine if the environment requires that they reduce their costs.  This often involves reducing the number of people they employ.  There are early indicators of this forming, as well as a few other indicators, that we can...
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Over the past two decades, as companies continue to seek talent and cities look to grow, they have partnered with universities in their local area to form innovation hubs creating unique opportunities for R&D, specialized talent, and economic growth.

Given the growth of Silicon Valley since the turn of the 21st century, other cities have sought to replicate their model to produce lasting research, create local jobs, and grow their economic base.  Some of the early adopters have been the Cortex district in St. Louis, MO with Washington University, St. Louis University, and University...
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The comparison data and the market-based indicators suggest that the rate of change for inflation in the U.S. should stop accelerating in the coming months and start to decelerate into the end of the year.

Inflation has become a major focus, impacting economic activity, consumer data, and market prices.  While it is not possible to predict the exact level of future price growth, we can examine prior and current inflation data to determine the likelihood that the current growth rate is sustainable.  We can also look at market-based indicators to...
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Consumer spending has moved from a driver of economic growth in 2021 to a negative contributor in 2022, which has negative implications for consumer companies and overall economic growth.

Consumer spending accelerated at a record pace in 2021, aided by a sizeable increase in fiscal support (direct payments, enhanced and expanded unemployment, and deferred consumer debt payments).  That support has gone away in 2022, the acceleration in 2021 activity is now a headwind to 2022 growth comparisons, and the acceleration in prices is having...
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Interest rates have been increasing and high yield credit spreads have been widening, which is impacting the cost of capital and slowing down new issuance.

One of the ways that we track investor expectations for economic growth is by looking at the high yield or below investment grade market.  Issuers in that part of the credit market have fewer funding options than investment grade issuers and are sensitive to changes in investors willingness to provide new capital at affordable rates. ...
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Rising Commercial Mortgage Rates and the Impact on the Multifamily Sector.

As inflation pressures continue to push interest rates higher, the multifamily sector of commercial real estate will likely face pressure as cap rates in the sector drop to historic lows.  Real Capital Analytics reports that U.S. commercial mortgages originated in 2021 had an average coupon rate of 3.7% for 7/10-year fixed rate product, and as...
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The price movements of different commodity segments are starting to diverge in ways that could have important implications for the rate of change in economic growth and inflation.

Commodity price trends are diverging across different classification types.  This is a shift from the trend in the second half of 2020 into the end of 2021, and the initial reaction to the news of the Russian invasion at the end of February, when all commodities were increasing.  This shift in the trend could have...
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