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February 2024 | Equity Commentary

February 2024 | Equity Commentary


Published on March 20, 2023

In February, the yield on the 10-year U.S. Treasury bond climbed about 30 basis points higher, to finish the month at 4.25%.1 Market participants and Fed presidents also signaled that rate cuts might come later than previously expected. On January 31, fed funds futures showed 97% of participants anticipating a rate cut by May. By February 29, however, nearly a third of participants weren’t even expecting a rate cut by June.2 Yet, despite higher rates and dashed hopes for rate cuts ‘early and often’ in 2024, stocks surged in the month of February. The S&P 500 rose +5.3% for the month, notching eight new all-time highs in the process.3 If inflation was the main reason expectations for rate cuts were changing, we would not expect equity markets to be performing so well. But it is strong economic growth—not inflation—that is primarily shifting the timeline for cuts, in our view. Investors appear to be reconciling with this reality.    

Q4 earnings season ended late in February, and the results were largely positive both nominally and relative to expectations. S&P 500 earnings grew by 7.8% year-over-year on 3.8% higher revenues. Relative to expectations, the data registered as a 1.2% positive surprise for sales and a 7.2% positive surprise for earnings,4 both of which are solid showings. Artificial Intelligence (AI) continues to be a dominant theme in the realm of corporate earnings, with the biggest name—Nvidia—reporting annual earnings growth of 288%.5 The market rally that accompanied Nvidia’s earnings report propelled it to becoming the third largest company in the world by market capitalization, behind Microsoft and Apple. Other big players in cloud computing like Google, Meta Platforms and Amazon forecast significantly higher spending on AI-related infrastructure, reinforcing the view that AI-related investment is likely to be a secular trend.  

The economy shows few signs of weakening. In February, the Bureau of Labor Statistics reported that total nonfarm employment rose by 275,000, with the unemployment rate ticking slightly higher to a still-low 3.9%. In what may have factored as positive news for equity markets, December and January payrolls were revised lower by a combined 167,000 jobs, indicating the labor market was not quite as hot as previously thought. Providing perhaps another sign of cooling, wage growth decelerated in February but remained positive, with average hourly earnings rising 0.1% and 4.3% year-over-year.6

Inflation as measured by the consumer price index (CPI) came in hotter than expected for January, which sparked some short-term volatility in equity markets. The all-items CPI print for January was 0.3% higher than December’s, and marked a 3.1% year-over-year increase, higher than the 2.9% expected rise. Over two-thirds of the monthly increase could be attributed to shelter costs, however, which rose 0.6%. Shelter costs for homeowners and renters makes up about 34% of the CPI measure,7 while they only account for about 15% of the Fed’s preferred inflation gauge, the PCE price index. The PCE price index’s 2.4% inflation print in January underscores the difference that this shelter weighting makes.8 

The U.S. housing market had a rough 2023, but recent data suggests it may be stabilizing. The National Association of Realtors reported that existing home sales rose 3.1% month-over-month in January to a seasonally adjusted annual rate of 4 million, the highest level in five months. Existing home sales were still down year-over-year, but the uptick from December could mark a turnaround for the housing market, especially considering that 30-year fixed mortgage rates dropped below 7% and may fall further as the Federal Reserve eases later in the year. The inventory of homes in the U.S. is still low. But that may also be driving rising confidence among U.S. homebuilders. In February, a survey of homebuilders showed three straight months of improving sentiment, with higher current sales, expected sales, and prospective buyer foot traffic.9

About a year on from the regional bank crisis of 2023, another mid-sized lender is experiencing fresh troubles. Shares of New York Community Bank (NYCB) fell by more than half10 through the end of February, as investors grow increasingly concerned over its commercial real estate exposure—particularly rent-stabilized multi-family buildings in the New York City area. It appears that NYCB has not set aside sufficient reserves against those exposures, and its 2023 acquisition of Signature Bank New York also added to its overall risk profile. In response to growing concerns, the bank cut its dividend, increased its loan loss provisions, and in early March, raised $1 billion in new equity. The coming weeks and months may be a critical period for NYCB, but the larger takeaway from this story is arguably that weakness in commercial real estate could continue creating pockets of stress in the financial and real estate sectors.

A final note on China, which recently released an economic growth forecast of 5% for 2024. While this forecast was in-line with expectations, it marks a material downshift in growth for China relative to previous years. China announced plans to sell 1 trillion yuan of special treasury bonds in 2024 as a stimulus measure, a rare action that had previously only followed economic emergencies (the Asian financial crisis of 1998, the 2008 Global Financial Crisis, and the pandemic).11 We believe this measure should help growth in 2024 but not propel it in a meaningful way, as China still contends with real estate issues, local governments saddled with debt, weak consumer demand, and deflationary pressures.    


1.Bloomberg: USGG10YR Index

2.Bloomberg: WIRP Function – Fed Futures

3.Bloomberg: SPX Index TRA

4.Bloomberg: SPX Index EA

5.Bloomberg: Nvdia Equity EM

6.BLS The Employment Situation – February 2024

7.Consumer Price Index Summary – 2024 M01 Results.pdf

8.Personal Income and Outlays, January 2024 _ U.S. Bureau of Economic Analysis (BEA).pdf

9.Existing-Home Sales Rose 3.1% in January.pdf

10.Bloomberg NYCB US Equity TRA

11.China Sets High Bar for Growth—and Turns to an Old Crisis Playbook – WSJ.pdf

As of February 29, 2024


January 2024 | Equity Commentary

January 2024 | Equity Commentary


Published on February 22, 2023

U.S. stocks maintained positive momentum to start the new year, with the S&P 500 rising +1.68% in January. In the three months ending January 31, the index gained 16%,1 and once again performance in January was driven by the “Magnificent Seven.” The predominant factor driving the sustained rally, in our view, was better-than-expected economic and earnings growth in Q4 2023 and particularly during the holiday shopping season. With 67% of S&P 500 companies reporting Q4 earnings as of February 9, the blended earnings growth rate was 2.9%, with 75% of companies surprising to the upside.2 Positive earnings and upside surprises are happening despite the ongoing drag from the Energy and Materials sectors, and the stock market’s enthusiastic response mirrors what we saw in 2023. In fixed income, Treasury bonds were fairly quiet in January, with the yield on the 10-year Treasury bond barely budging for the month to finish at 3.91%.3

As was the case throughout most of 2023, the U.S. economy grew more than expected in Q4. According to the Bureau of Economic Analysis “advance” estimate, real gross domestic product (GDP) grew at an annual rate of 3.3% in the fourth quarter, which followed the robust 4.9% real GDP growth posted in Q3.4 Both GDP numbers were above estimates, and stood in stark contrast to the near-unanimous calls for recession made at the outset of the year. As we detail below, consumer spending was a key driver of economic growth in Q4 and throughout 2023. But we also saw encouraging productivity data in the second half of last year, with nonfarm business sector labor productivity up 4.9% in Q3 and 3.2% in Q4.5 It may be too early to label this a productivity boom—and certainly too early to attribute it to rapid advances in generative AI—but these gains mark a sharp turnaround from 2022 and will be worth tracking in 2024.

The U.S. consumer remains the primary engine driving economic growth. According to the Commerce Department, U.S. retail sales rose by a seasonally-adjusted 0.6% month-over-month in December, which followed an also strong 0.3% uptick in November. On a year-over-year basis, retail sales rose 5.6% in December, which was virtually in-line with last year’s 5.8% and was about 200 basis points higher than annual inflation for the month.6 For holiday sales specifically, the National Retail Federation reported a 3.8% increase with ecommerce sales growing 8.2% year-over-year, essentially in-line with forecasts.7 This strength in consumer spending flies in the face of suggestions that the consumer was tapped out, particularly due to the resumption of student loan payments.

As we wrote many times last year, we believe ongoing strength in the labor market is the main factor supporting spending. The Labor Department reported jobs growth of 353,000 for January, and December’s payroll gains were revised higher, from the previously reported 216,000 up to 333,000. Overall, the unemployment rate held steady at 3.7% in January—near record lows—and wages continue to rise faster than inflation, empowering consumers. Wage growth was 4.5% year-over-year in January.8 Even with strong consumer spending and jobs market data, consumer confidence has been stubbornly low, likely a byproduct of consumer focus on nominal prices versus rate of change—the latter of which is the Fed’s focus. Housing market affordability may also be a culprit weighing on sentiment. According to the National Association of Realtors, the median sales price of an existing home sold in December was $387,000, compared to $277,000 in December 2019. With 30-year fixed mortgage rates more than doubling since 2022, buying a home is out of reach for a growing number of Americans.9

But January produced early signs that a positive shift in sentiment may be afoot. The Conference Board’s consumer confidence index rose 6.8% from December, with feelings about the business environment and jobs market hitting their highest level since the pandemic. Consumers no longer believe that jobs are “hard to get,” and inflation expectations fell to their lowest level since March 2020. The University of Michigan measure of consumer sentiment painted a similar picture, posting its biggest two-month increase since 1991.10 American households are also looking ahead and seeing the possibility, or even likelihood, of lower interest rates, which may reduce borrowing costs and bring home purchases back within reach. An increase in the number of homes coming on the market may also help—home builder sentiment rose to its highest level in six months, and the Commerce Department reported that a seasonally adjusted 1.09 million homes began construction in Q4, the most in almost two years.9

Another critical area of economic activity is in services, which also reported strong January data. According to the Institute for Supply Management’s (ISM) services-activity index, activity rose from 50.5 in December to 53.4 in January—a substantial increase into expansionary territory and well above consensus estimates. New orders, business activity, and employment all saw growth, and a majority of respondents in the survey said business is steady or improving.11

Fundamental strength in the U.S. economy is arguably one of the main reasons the market has dramatically lowered expectations for a March interest rate cut. The market-implied probability of a cut at the March meeting started 2024 at 84% and fell to 34% by the end of January.12 Higher-than-expected CPI also didn’t help. According to the Labor Department, CPI rose 3.4% in December from a year earlier, a slight acceleration from November’s 3.1% print. Prices rose 0.3% month-over-month, which was also higher than November’s 0.1% month-over-month gain.13 Finally, markets may also be taking Red Sea supply chain disruptions into account. Attacks on vessels continue and ships increasingly divert to routes around the Cape of Good Hope, a move which adds extra time and costs to supply chains. Taken together, in our view a rate cut does not seem likely at least until the May 1 meeting, but perhaps not until June 12.


1.Bloomberg: SPX Index TRA

2.Factset – Earnings_Insight_020924.docx

3.Bloomberg USGG10YR Index

4.Gross Domestic Product _ U.S. Bureau of Economic Analysis (BEA)

5.Gross Domestic Product, Fourth Quarter and Year 2023 (Advance Estimate) _ U.S. Bureau of Economic Analysis (BEA)

6.Census Monthly Retail Trade – Sales Report

7.NRF _ NRF Says Census Data Shows 2023 Holiday Sales Grew 3.8% to Record $964.4 Billion

8.BLS Employment Situation Summary – 2024 M01 Results

9.The Economy Is Starting to Look Normal—Housing Isn’t – WSJ


11.ISM January

12.Bloomberg: Fed Funds

13.Consumer Price Index Summary – 2024 M01 Results

As of January 31, 2024


December 2023 | Equity Commentary

December 2023 | Equity Commentary


Published on January 12, 2023

Investors felt the holiday cheer in December, with the S&P 500 index rallying 4.5% for the month to finish 2023 with a total return of +26.3%.1 The rally lifted the Dow Jones Industrial Average to a new all-time high, and came within a percentage point of doing the same for the S&P 500.2 Risk assets seemed to benefit in December from the Federal Reserve effectively ending their monetary tightening campaign, with the benchmark fed funds rate held steady at the December FOMC meeting. The Federal Reserve also projected rates would end 2024 in a range of 4.5% to 4.75%, which is 0.75% lower than where the fed funds rate stands today.3 Put another way, the Fed telegraphed the potential for three rate cuts in the new year, a message that received a warm reception across the capital markets—especially considering the rising expectation for a ‘soft economic landing.’ In fixed income, 10-year U.S. Treasury bonds also rallied in December, with yields falling from 4.33% to 3.88% for the month.4 This completed a round trip for 10-year Treasury bond yields in 2023, which started the year at 3.88%, spiked up to 5% in October for the first time since 2007, then marched lower in Q4 to essentially finish the year flat.4

Relatively weak consumer spending data in October had many investors and economists worried the U.S. consumer would deliver an underwhelming holiday shopping season. Fortunately, those worries did not materialize. According to Mastercard SpendingPulse, shopping sales between the beginning of November and Christmas Eve climbed 3.1%, which was largely in-line with the National Retail Federation’s projections and not far from the 3.6% average shopping growth posted between 2010 and 2019.5 Zooming out to 2023 as a whole, one key area where spending rose was in auto sales. Easing supply chain pressures and ramped-up production led to rising inventories, easing prices, and more promotional deals. All told, 15.5 million vehicles were sold last year, a 12.4% jump from 2022, with many automakers reporting double-digit year-over-year sales gains.6

The relatively strong holiday shopping season coincided with rising U.S. consumer confidence. The Conference Board’s consumer confidence index rose from 101.0 in November to 110.7 in December, reaching a five-month high. According to the Conference Board, confidence rose across all age groups and household income levels, likely responding to a combination of rising wages, a strong labor market, rising stock prices, falling mortgage rates, and lower gasoline prices. Consumers indicated in the survey that they plan to buy more cars, major appliances, and houses in the next six months, a prospect likely bolstered by 30-year fixed mortgage rates falling for seven straight weeks.7 The U.S. housing market could use a boost following a weak 2023—though existing home sales in November were up 0.8% from October to a seasonally adjusted annual rate of 3.82 million, it was still the weakest year for sales in over a decade.7

The U.S. Bureau of Labor Statistics (BLS) reported that payrolls grew by 216,000 in December and the unemployment rate remained at 3.7%, both of which were better than consensus estimates. October and November payrolls were revised lower, which put the three-month average for job growth at 115,000 – not too hot, not too cold. In the job openings and labor turnover survey (JOLTS), it was reported that the U.S. economy had 8.8 million job openings, which signals to us that the labor market is rebalancing via fewer job openings and a lower quits rate, versus outright layoffs. Wage growth continues to run slightly hotter than the Fed likely wants to see, however, with average hourly earnings up 0.44% in November and at a 4.3% annual rate over the past three months. 3.5% annual wage growth would be more consistent with the Fed’s inflation target, in our view.8

Two key measures of inflation released in December, the CPI and the PCE price index, both signaled that prices continue to trend in the right direction. The consumer price index measure of inflation rose 3.1% in November from a year ago, an improvement from October’s year-over-year pace. Prices rose 0.1% month-over-month, which was higher than economists expected, but modest enough not to cause much concern. Falling gasoline and durable goods prices were offset by price increases for shelter (housing), auto insurance, and a few other services. Core prices, which exclude food and energy, were up 4% year-over-year. The Federal Reserve’s preferred inflation gauge, the PCE price index, decreased 0.1% in November and was up 2.6% year-over-year, all but confirming the Federal Reserve is indeed done raising interest rates in this cycle.9

One sustained pocket of weakness in the U.S. economy has been in manufacturing. December data from the Institute for Supply Management showed factory activity continues in a slow patch, with the manufacturing index coming in at 47.4. This reading was just a slight improvement from November’s 46.7 and marks the 14th consecutive month of contraction (readings below 50) in factory activity. The silver lining is that while factory activity may be somewhat weak, factory construction in the U.S. is experiencing a boom. Government subsidies tied to the Inflation Reduction Act and the Chips and Science Act, which included $39 billion in subsidies for semiconductor producers, contributed to a 40% increase in factory construction in 2022 followed by a 72% increase through the end of October 2023. December’s employment report adds a key data point, with U.S. nonresidential construction employment reaching an all-time high.10 Bringing these new factories online should serve as a tailwind to manufacturing activity in the medium term. 

 A risk that cropped up in December involves a key global shipping route through the Red Sea, where 12% of the world’s seaborne oil, 8% of its liquified natural gas, and 20% of all container trade pass through. In December, shipping companies increasingly rerouted vessels as attacks on merchant vessels by Houthi forces in Yemen have sparked fears that cargo and personnel could be in danger. Most notably, the shipping giant A.P. Moller-Maersk announced it would reroute vessels around the Cape of Good Hope in southern Africa, which adds time and cost to the movement of goods and energy.11 For now, the impact on global inflation seems contained, and the U.S. is working with allies to secure the route. But this will be an issue worth watching in the coming weeks.


1.Bloomberg: SPX Index TRA

2.The Dow Jones Just Hit an All-Time High. Here’s Why It Could Beat the Nasdaq in 2024. _ Nasdaq.pdf

3.With rate hikes likely done, Fed turns to timing of cuts _ Reuters.pdf

4.Bloomberg: USGG10YR Index

5.Mastercard SpendingPulse_ U.S. retail sales grew +3.1% this holiday season _ Mastercard Newsroom.pdf

6.U.S. Auto Sales Bounced Back in 2023 – WSJ.pdf

7.US consumer confidence jumps to five-month high; home sales eke out gains _ Reuters.pdf

8.Employment Situation Summary – 2023 M13 Results.pdf

9.Personal Income and Outlays, November 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf


11.U.S. Leads Bid to Secure Red Sea, but Shipping Firms Remain on Edge – WSJ.pdf

As of December 31, 2023


November 2023 | Equity Commentary

November 2023 | Equity Commentary


Published on December 20, 2023

The S&P 500 delivered its strongest month in three years, rising +9.1% in November.1 We think both fundamental and technical factors drove the rally. Fundamentally, the probability of a soft economic landing increased, implying that the U.S. may avoid recession and that the Federal Reserve will likely stop raising interest rates in this cycle. Better-than-expected inflation prints in October added to investors’ conviction that the Fed is ‘done,’ while falling interest rates, crude oil and gasoline prices, and mortgage rates bolstered the short-term outlook for U.S. consumers and businesses. Perhaps the most substantial tailwind for equities in November was falling interest rates, with the yield on the 10-year U.S. Treasury bond declining from 4.93% at the end of October to 4.33% by November’s end.2 From a technical standpoint, we mentioned last month that the November – January timeframe tends to be a strong seasonal period for stocks, and it’s also worth noting that stocks historically perform well in the third year of a presidential term. Finally, a key technical indicator, the Relative Strength Index (RSI), fell below 30 following the July 31 – October 27 correction of -9.9%. When the RSI falls below 30, it may indicate that the stock market is oversold.3

 October inflation data was better than many market participants expected. The Labor Department reported that core CPI was flat from September to October and rose 3.2% year-over-year. Importantly, core inflation from June to October rose at a 2.8% annual rate, a significant improvement from the 5.1% pace in the first five months of 2023.4 The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 3% year-over-year in October, a meaningful decline from the previous month and below the long-term average for inflation (3.3%). Core PCE prices rose at a 2.5% six-month annualized rate, a significant step down from the 4.5% rate for the six months through April.5

As we expected, the Federal Reserve held rates steady at the Federal Open Market Committee’s November 1 meeting. With long-duration interest rates pressured higher and the Fed no longer convinced that higher unemployment and weak economic growth are needed to lower inflation, it seems likely that they are done raising rates in this cycle. Indeed, in comments following the meeting, the Fed emphasized the risks to growth versus the risks to higher inflation, which seemed to confirm their view that monetary policy is sufficiently tight.

While inflation trends lower and the Federal Reserve winds down its monetary tightening campaign, the U.S. economy continues to grow. The Bureau of Economic Analysis (BEA) revised its third-quarter GDP growth estimate to 5.2%, up from the 4.9% “advance” estimate. The BEA said the upward revision primarily reflected higher business investment and government spending, partly offset by a downward revision to consumer spending.6 October saw U.S. consumers pull back slightly, with the Commerce Department reporting that consumer spending rose 0.2% in October—a marked slowdown from September’s 0.7% month-over-month increase. October’s pace of increased spending was the slowest since May, as data indicates Americans bought less furniture, clothes, and vehicles. The relatively weak month may have also just been influenced by consumers waiting for better deals to arrive in November. Anecdotally but still importantly, consumers spent $38 billion in the five-day Thanksgiving period through ‘Cyber Monday,’ up 7.8% from 2022 levels.7

It seems that Americans are still wary of their economic prospects and the overall state of the economy, as the University of Michigan sentiment index has fallen every month since July. Inflation has made its mark on consumer sentiment, and high mortgage rates and lack of housing affordability are certainly playing a key role. Fundamentally, however, American households generally seem to be in solid shape. Household net worth hit a new record in the second quarter, and with prices of existing homes, stocks, and bonds all higher over the past few months, it appears likely that consumer net worth set another record in Q3.

One final tailwind for stocks and the economy in November, in our view, was falling crude oil and gas prices. Crude oil prices fell by about 5% for the month,8 while the retail price of gasoline has fallen by over -15% in the last ten weeks.9 There are arguably a few factors driving oil lower. The conflict between Israel and Hamas did not grow wider as once feared, and instead featured a ceasefire in November where hostages and prisoners were exchanged. In November, OPEC+ called for cuts of an additional million barrels a day, but the cuts are voluntary. Traders do not seem convinced that major oil-producing nations like the United Arab Emirates, Nigeria, and Angola will necessarily sign on, and the counterweight of strong production from the United States is also likely neutralizing the impact from any OPEC moves. The U.S. Energy Information Administration reported that U.S. crude and condensate production increased to 13.24 million barrels a day (b/d) in September, with increases of 342,000 b/d over the previous three months (annualized growth of 11%).10 Record output from the U.S., coupled with the expectation of falling global demand given China weakness and the impact of higher interest rates, has arguably kept prices anchored.


1.Bloomberg: SPX Index TRA

2.Bloomberg: USGG10YR Index

3.Relative Strength Index (RSI) _ Fidelity.pdf

4.Consumer Price Index Summary – 2023 M10 Results.pdf

5.Personal Income and Outlays, October 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

6.Gross Domestic Product (Second Estimate) Corporate Profits (Preliminary Estimate) Third Quarter 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

7.Consumers Pulled Back on Spending, Inflation Eased in October – WSJ.pdf

8.Bloomberg CL1COMB Comdty Index

9.Bloomberg 3AGSREG Index

10.Record U.S. oil output challenges Saudi mastery_ Kemp, Energy News, ET EnergyWorld.pdf

As of November 30, 2023


October 2023 | Equity Commentary

October 2023 | Equity Commentary


Published on November 11, 2023

Stocks posted their third consecutive month of negative performance in October, with the S&P 500 declining -2.1% for the month.1 From the late July peak through the end of October, the S&P 500 has fallen -8.6%,1 which is not technically a correction but, to us could be fairly framed as one. Hamas’s October 7 attack on Israel weighed on sentiment early in the month, and three weeks without a speaker of the U.S. House of Representatives also contributed to uncertainty. However, U.S. economic growth remained quite strong during this period of stock market weakness, and the corporate earnings recession of the last three quarters appears to be over. Looking forward, seasonality may work in the stock market’s favor, with historically positive returns for the November – January period. In the bond markets, the 10-year U.S. Treasury bond yield continued to move higher, rising sharply from 4.57% to 4.93% over the course of October.2

 The U.S. economy accelerated in the third quarter. According to the “advance” estimate from the Bureau of Economic Analysis, U.S. GDP expanded at a 4.9% annual rate in Q3, which marks a significant pickup from Q2’s 2.1% pace. On the positive side, GDP growth was largely driven by consumer spending, underscoring ongoing resilience amid higher prices. Q3 output was also boosted by increases in private inventory investment, government spending, and exports. On the negative side, business spending fell off slightly, and commercial and industrial lending declined. These data points suggest that banks and businesses felt inclined to bolster cash reserves in the quarter.3

A closer look at the U.S. consumer reveals a mixed, but mostly positive picture. On the plus side, monthly payroll growth has averaged 258,000 per month over the past year, with wages steadily pushing higher along the way. In October, employers added 150,000 new jobs and average hourly earnings rose 4.1% year-over-year. A key takeaway here is that wage growth now exceeds inflation, which means real wages are going up for Americans – a factor that’s likely bolstering spending. Indeed, real disposable income rose 3.0% during the first nine months of the year, though higher gasoline prices in Q3 took a small bite out of those gains.4  Lastly, U.S. labor productivity rose at 4.7% in the third quarter, the biggest improvement since 2009 (if we exclude the period immediately after COVID shutdowns).5

The October jobs report did show signs of labor market cooling, however. Nearly all of the job gains came from just three sectors—healthcare, government, leisure & hospitality—with the rest of the economy effectively seeing no job growth for the month. We’d also note that monthly payroll gains have slowed to 204,000 over the past three months, and the unemployment rate has been slowly but consistently moving higher. It registered at 3.9% in October, up from 3.4% in April.4 It is possible that the lower October payrolls figure was negatively impacted by the UAW strike, in which case we’d expect to see those jobs return to the November payrolls figure.6

Americans are employed and earning higher wages, but higher net worth and demographics are also arguably contributing to resilient spending. Household net worth rose from $116.7 trillion at the end of 2019 to $154.3 trillion as of the end of Q2 2023, with half of that wealth concentrated in the Baby Boomer demographic.7 According to the Census Bureau, 17.7% of the population was 65 or older in 2023, the highest percentage going back to 1920. Boomers tend to have relatively stable and healthy finances that benefit from higher interest rates, and many are also just entering retirement, which is a time for less working and more spending. In 2022, Americans age 65 and older accounted for 22% of total consumer spending, the highest percentage since records began over 50 years ago. It’s also up significantly from the 15% of consumer spending that seniors accounted for in 2010.8

Despite the strong jobs market and an ongoing willingness to spend, recent data suggests U.S. consumers felt worse about their economic prospects in October than they did in prior months. The Conference Board’s index of consumer confidence fell to 102.6 in October, marking three months of consecutive declines and returning to levels last seen in late 2022 (which, recall, was a year of rising interest rates and a bear market). Consumer confidence metrics fell across a broad range of categories, spanning consumer outlooks for income, business, and employment. The onset of war in the Middle East and the lack of speakership in the House of Representatives may have contributed to souring sentiment.9

The headline personal consumption expenditures (PCE) price index, registered at 3.4% year-over-year in September, consistent with July and August’s readings. On a monthly basis, the headline PCE price index rose 0.4%, which was consistent with August but marks an increase from earlier in the summer. As expected, on November 1 the Federal Reserve held the benchmark fed funds rate steady at a range between 5% and 5.25%. Fed officials have now ‘paused’ rate increases at two consecutive meetings, which marks the longest stretch without a rate increase since they started their tightening campaign in March 2022. The Fed likely considers the downtrend in inflation and higher long-term interest rates as two factors working in the right direction, since the former means their primary objective is being addressed and the latter implies tighter financial conditions looking ahead.10 We believe this pause may indicate that the odds of the Fed being done with its rate hikes have increased.


1.Bloomberg: SPX Index TRA Function

2.Bloomberg: USGG10YR Index TRA Function

3.Gross Domestic Product, Third Quarter 2023 (Advance Estimate) _ U.S. Bureau of Economic Analysis (BEA).pdf

4.Employment Situation Summary – 2023 M10 Results.pdf

5.Bloomberg: Q3 2023 Productivity vs History Biancoresearch.pdf

7.Yardeni Research Morning Briefing Trick Or Treat .pdf

8.The U.S. Economy’s Secret Weapon_ Seniors With Money to Spend – WSJ.pdf

9.US Consumer Confidence.pdf

10.Personal Income and Outlays, September 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

As of October 31, 2023


Third Quarter 2023 | Fixed Income Commentary

Third Quarter 2023 | Fixed Income Commentary

Published on October 24th, 2023


Fixed Income markets declined in the third quarter as higher interest rates and wider credit spreads weighed on valuations. The Current Income Portfolio declined 0.1% gross (0.4% net),1 the Bloomberg Intermediate US Govt/Credit Index declined 0.8%, the Bloomberg Intermediate US Corporate Index declined 1.0%, and the ICE BofA Fixed Rate Preferred Securities Index declined 1.2%.2 CIP’s outperformance was primarily driven by its shorter duration relative to these indices as well as its allocation to fixed to floating rate coupon securities.3

During the quarter, 10Y US Treasury yields increased 74 bps to reach the highest level since 2007.4 The FOMC hiked interest rates by 25 bps in July, and although the committee chose to pause on additional rate hikes in September, participants raised forecasts for the Federal Funds Rate in 2024 by 50 bps (by predicting fewer interest rate cuts) compared with similar projections that were made in June.5 Forecasts for policy rates to be held “higher for longer” were likely driven by recent strong economic growth, given the latest increases in U.S. consumption, as opposed to expectations for higher inflation.6 In fact, core measures of inflation have moderated somewhat since this time last year, while real GDP has exceeded expectations, increasing by 2.2% and 2.1% (y/y) in the first and second quarters, respectively.5,7  In addition to expectations for higher growth, we think some of the increase in longer-term yields may also be attributable to a rise in “term premium”, which can be understood as compensation to bondholders for the uncertainty around future inflation. Term premiums can increase from changes in longer-term trends such as deglobalization, a global shortage of workers due to changing demographics, or inflated federal debt that needs to be financed by printing money, in our view.

Median Dot Plot Projections Increased from the June and September 2023 FOMC Meetings

FOMC Dot Plot Projections as of 06/14/23: Grey line

FOMC Dot Plot Projections as of 09/20/23: Green line 

Median forecasts for the Fed Funds Target Rate (as depicted by the FOMC “Dot Plot”) increased by roughly 50 bps in the 2024 and 2025 period projections, from the June 2023 to the September 2023 Federal Reserve meetings. We believe this “higher for longer” outlook contributed to the recent rise in government yields across the tenors of the yield curve.


We believe credit spread widening also contributed to a moderate decline in fixed income security prices during the third quarter. Factors that drove spreads wider may have included the threat of a U.S. government shutdown and strikes by automobile industry workers, in Hollywood, and at UPS. Concerns over potential pressures building on the consumer from the expected resumption of student loan payments, rising oil prices and depleted excess savings accumulated during the pandemic may also have added to general spread widening.8 Finally, geopolitical concerns could have also had a negative impact on credit spreads. Growth is slowing in China and its property development sector and related financial institutions may be overleveraged,9 the Ukraine conflict appears locked in a stalemate,10 prolonging its inflationary impacts on the global economy, and a new conflict in the Middle East may also add risk to the global economic outlook.11

Higher government yields and growing credit risk may also continue to exacerbate challenges in commercial real estate and in the banking sector.12 Although deposits at the largest U.S. banks appear to have stabilized (average deposits across large U.S. banks fell just 0.4% in the third quarter), the value of banks’ securities portfolios typically declines when government yields rise.12,13 At present, however, we believe the largest US banks are well capitalized enough to withstand potential further unrealized losses. Many banks are cutting costs and building capital in preparation for the “Basel III Endgame” requirements to be phased in over the next two years.14 We believe this will result in (among other things) significantly more capital being held on bank balance sheets as a buffer to withstand further material declines in valuations.

Commercial real estate values, particularly in the office and retail sectors, may continue to be stressed as higher capitalization rates, shifts in work from home trends, and increased vacancy rates persist.13 In fact, many banks have already begun to work out solutions with some of their stressed borrowers, which we believe could have a slight advantage over those loans that are syndicated out through CMBS and still need to be worked out. Additionally, while rents might be down on office properties this year, in other sectors such as multi-family, rents have increased in many parts of the country.15 Moreover, the largest U.S. banks have diversified loan portfolios such that the greatest exposure to office properties, for any single issuer, is at most 4% of total loans.16 Nevertheless, we think banks’ earnings will continue to face pressures, as higher rates are paid out on deposits and on other funding sources (such as borrowing from the Bank Term Funding Program), and tighter regulations and higher capital requirements dampen profitability across the industry.13 Ultimately, however, we expect the collective impact of new financial regulatory requirements to be net-positive to the credit quality of large U.S. banks.

Looking forward, we believe it is unclear as to how much higher longer-term yields will factor into the Federal Reserve’s decision to keep tightening at the short end of the yield curve. (Recall that when inflation expectations fall and the policy rate is held constant, the Federal Reserve is still effectively “tightening” monetary policy because “real” interest rates are still rising as a result.)  Also, given the typical lagged impact from monetary policy tightening, it could be a while before the data starts to reflect the Fed’s recent hikes. We think upside risks to the future path of interest rates could include strength in spending and payrolls, while downside risks could include weak global growth.

What we believe will matter most is the overall impact on the consumer, which has been resilient thus far thanks to a robust employment market, excess savings, and strength of late in both home prices and stock prices, in our view. We expect the student loan repayment impact to be concentrated in lower-tier discretionary retail, similar to the reduction in SNAP payments that occurred in February, and we believe Beijing has the means and the will to contain its financial system risks, though economic growth in China may remain sluggish. Government shutdowns (not to be confused with debt ceiling brinksmanship, which we believe introduces more risk to capital markets) typically have very limited economic or market impacts, even when they are prolonged, as may occur in this instance.17

We continue to position the portfolio defensively with respect to credit risk and potential volatility from changes in interest rates. Our target duration of ~4 years on the corporate bond allocation is unchanged (although many of our existing accounts have a shorter duration on the corporate bond sleeve, which we may look to extend by swapping some shorter maturity securities for those with slightly longer maturities). We also maintain a target mix of fixed and fixed to floating rate coupon securities on the preferred allocation. Lastly, we prefer the largest U.S. banks to the regional U.S. banks due to their diversified deposit base and stricter regulatory requirements already adhered to and planned to increase in the future. We still look to diversify the preferred allocation into various non-financial industry groupings and remain selective within our corporate credit security selection.


1.GIPS Composite Preliminary Performance 3Q2023

2.Bloomberg Port: Bloomberg Intermediate US Govt/Credit Index, Bloomberg Intermediate US Corporate Index, ICE BofA Fixed Rate Preferred Securities Index

3.Bloomberg Port: OAS

4.Bloomberg Port: USGG10YR Index

5.Transcript of Chair Powell’s Press Conference September 20 2023.pdf

6.The Fed – September 20, 2023_ FOMC Projections materials, accessible version.pdf

7.Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), Second Quarter 2023 and Comprehensive Update _ U.S. Bureau of Economic Analysis (BEA).pdf

8,U.S. Economy Could Withstand One Shock, but Four at Once_ – WSJ.pdf

9.China Slowdown Means It May Never Overtake US Economy, New Forecast Shows – Bloomberg.pdf

10.Opinion _ Ukraine war analysis shows territory stalemate, economy, refugees – Washington Post.pdf

11.Israel-Hamas War Impact Could Tip Global Economy Into Recession – Bloomberg.pdf

12.Speech by Governor Bowman on financial stability in uncertain times – Federal Reserve Board.pdf

13.Federal Reserve Board – Assets and Liabilities of Commercial Banks in the United States – H.8 – October 06, 2023.pdf

14.FDIC_ Speeches, Statements & Testimonies – 6_22_2023 – Remarks by Chairman Martin J. Gruenberg on the Basel III Endgame at the Peterson Institute for International Economics.pdf

15.Examining Apartment Rent Growth Year-to-Date in Mid-2023 _ RealPage Analytics.pdf


17.Breaching the debt ceiling is not the same as a government shutdown. Its consequences could be dire. _ PIIE.pdf

As of September 30, 2023


September 2023 | Equity Commentary

September 2023 | Equity Commentary


Published on October 11, 2023

Equity markets behaved in September much like they did in August, with interest rates going up and stocks going down. The yield on the 10-year U.S. Treasury bond rose from 4.11% to 4.57% in September1, a larger increase than was seen in August and which also resulted in a bigger downdraft for stocks. The S&P 500 fell -4.8% for the month.2 Looking at August and September together, 10-year Treasury bond yields rose 61 basis points while stocks fell -6.3%.2 Generally speaking, higher yields give investors more choices for pursuing risk-adjusted returns, while also reducing the present value of future profits. Both outcomes tend to be negative for stocks, particularly in the high-valuation and high-growth categories. We believe the upshot in the current environment is that data strongly suggests the key driver of higher yields is better-than-expected economic growth, not higher-than-expected inflation. The latter would indicate that rates are rising for the wrong reasons, and also that the Federal Reserve would have no choice but to keep pushing rates higher in the future (which would create sustained pressure on stocks). It appears with inflation trending lower and the Federal Reserve no longer convinced a recession is necessary for controlling prices, there’s still a good argument for a decline in rates next year.

 Many signs point to strong economic growth in the third quarter. According to the New York Federal Reserve’s August SCE Household Spending Survey, households spent 5.5% more in August 2023 than in the same month last year, and more households reported making one large purchase over the previous four months. Earnings reports and other survey data also indicate that Americans have yet to pull back from spending on experiences, like taking trips, buying concert tickets, or splurging on vacations.3  

We believe US consumers’ willingness to spend is largely tied to ongoing strength in the jobs market. In the week ending September 23, weekly unemployment claims were 204,000, which is a historically low figure and also marks a solid improvement from data over the summer.4 Americans are also quitting jobs at a much lower rate than they were last year, with the ‘quits rate’ falling to 2.3% in August from a peak of 3% in April 2022. While it is true that the quits rate historically falls during a recession – as workers cling to their jobs – today it seems more tied to better pay, more flexibility, and a general sense that it may be challenging to get an even better job.5

Factory activity in the U.S. also improved in September. S&P Global’s manufacturing PMI for September 2023 was 49.8, which exceeded August’s 47.9 and is very close to returning to expansion territory. Output rose at a marginal pace but was the fastest since May. The Institute for Supply Management (ISM) gave a similar readout for U.S. manufacturing, registering at 49% in September from 47.6% in August, with improvements in New Orders and the Production Index.6

In Services – a more important factor in determining total U.S. economic output – S&P Global posted Services PMI at 50.1 in September, which remains in expansionary territory. S&P Global’s report indicated that business activity was largely consistent with August, though new orders fell amid weaker domestic and foreign demand. Companies did continue hiring at a solid pace, however, given strong output expectations looking ahead to 2024.6 ISM’s Services PMI looked stronger, registering 53.6% in September and showing solid increases in the Business Activity and New Orders indexes.7

While the economy demonstrates fundamental strength, inflation has continued to trend lower. In August, core CPI (which strips out food and energy) was up 0.3% from July and 4.3% year-over-year, a solid improvement from July’s 4.7% print. Importantly, when core CPI is looked at over a 3-month period, it increased at an annual rate of 2.4%, which is a substantial improvement from the 5% annual rate recorded over the previous 3-month stretch. 2.4% is also approaching the Fed’s target for inflation, a positive sign. The Labor Department reported that half of August’s headline increase in consumer prices was due to gasoline, which arguably keeps the Fed from becoming too worried, and supports a ‘pause’ of rate increases at the next meeting.8

Looking ahead to Q4, Federal Reserve Chairman Jerome Powell summed up many of the concerns playing out in the headlines, when he said: “It’s the strike, it’s government shutdown, resumption of student loan payments, higher long-term rates, oil price shock.”9 While each of these factors in a vacuum would not appear to be much of a concern for the broad U.S. economy, it’s the combination of all four that could serve as a headwind to growth as we approach the end of the year. We concede that these factors could make growth more muted in Q4, but we also believe the strength of the jobs market and the U.S. consumer are likely to continue acting as a neutralizing force, as they have all year. From an investment standpoint, the aforementioned headwinds are widely known and reported, which we think reduces their potential to negatively impact equity markets.


1.Bloomberg USGG10YR Index

2.Bloomberg SPX TRA Index

3.Americans Are Still Spending Like There’s No Tomorrow – WSJ.pdf

4.DOL Unemployment Insurance Weekly Claims News Report

5.Americans’ Growing Reluctance to Quit Their Jobs, in Five Charts – WSJ.pdf

6.S&P Global US Services PMI

7.September ISM World.pdf

8.U.S. Inflation Accelerated in August as Gasoline Prices Jumped – WSJ.pdf

9.U.S. Economy Could Withstand One Shock, but Four at Once_ – WSJ.pdf

As of September 30, 2023


August 2023 | Equity Commentary

August 2023 | Equity Commentary


Published on September 21st, 2023

The S&P 500 retreated -1.6% in August, which we would frame as a ‘breather’ following the 20.6% rise through the first seven months of the year.1 It would be difficult to argue that corporate earnings drove weaker returns – in the second quarter, S&P 500 companies delivered a positive 7.91% surprise in earnings and a 2.07% upside surprise for revenues (with 462 companies reporting). Year-over-year, earnings were down -6.02%, but this figure was 8% better than analysts were expecting at the beginning of earnings season, and it’s also worth noting that aggregate earnings were weighed down by pronounced weakness in the Energy and Materials sectors.2 Expectations for future earnings and revenues have been rising, reflecting optimism that Q2 or Q3 2023 could mark the trough of earnings declines in this cycle. The 10-year U.S. Treasury bond yield moved 15 basis points higher in August, but a closer look reveals that intra-month, yields climbed up to 4.34% – the highest level since 2007.3 

 We think the key story for capital markets in August was the yield curve shifting higher, driven mostly by the 10-year Treasury bond’s 15 basis point move. We believe yields likely rose due to a number of factors. First, the supply of long-term bonds appears to be increasing, which we believe is a byproduct of limited issuance during the debt ceiling standoff combined with rising deficits as big spending programs kick in. We think seasonality is a second factor – August tends to see lighter trading volumes, and lower liquidity levels can exacerbate moves in either direction. We also wrote last month about the Bank of Japan’s surprise move to loosen yield curve controls, which may have shifted some demand away from U.S. Treasuries.

While these are all meaningful factors driving yields higher, we think the important takeaway in August was that upward pressure on yields was likely driven more by growth than inflation – with the latter trending lower while expectations for growth moved upward. Consumer price index (CPI) data for July was relatively benign. The Labor Department reported that core CPI rose by 4.7% year-over-year, a slight cooling from June’s 4.8% annual rate. Month-over-month core CPI also showed signs of cooling, up just 0.2% from June to July. Another, perhaps more insightful look at core inflation is to consider the 3-month annualized rate, which in July came in at 3.1% – the lowest print in two years.4

While inflation trends lower, expectations for economic growth are moving in the other direction. As of September 8, the Atlanta Federal Reserve’s GDPNow tracker is projecting the U.S. economy will expand by 5.6% in the third quarter, and consensus that the U.S. is heading for a recession in 2023 has largely dissipated.5 It appears that some economists have pushed out recession expectations to 2024, while others have embraced the idea of a soft economic landing. Either way, given that a recession is typically defined by two consecutive quarters of economic contraction, a downturn in 2023 is likely off the table.

U.S. consumers have been powering the better-than-expected economic growth story. In the second quarter, the Consumer Discretionary sector produced +35.43% year-over-year earnings growth on +11.63% higher revenues (also the strongest showing among S&P 500 sectors). While improving revenues were largely expected, the earnings surprise of 21.23% marked a blowout of analyst expectations.6 An important driver of strong spending has been real wage growth. Over the past 12 months, average hourly earnings have increased by 4.3%,7 while inflation (CPI, including food and energy) has risen by 3.2% over the same period.8

A healthy jobs market is helping. August data from the U.S. Labor Department showed the jobs market moving in the direction the Fed wants (slightly weakening), while still remaining in overall strong shape. Nonfarm payrolls rose by 187,000 for the month, with downward revisions to June and July. All told, the three-month moving average increase in employment dropped to 150,000 jobs/month, which is more in-line with pre-pandemic norms.9 The number of job openings also fell from 9.16 million in July to 8.8 million in August,10 while a 736,000 surge in the labor force (0.2% increase) pushed the unemployment rate from 3.5% to 3.8%.9   

The Federal Reserve’s annual economic symposium in Jackson Hole took place in August, and in it Chairman Jerome Powell acknowledged that GDP growth “has come in above expectations and above its longer-run trend.” He also pointed to strong consumer spending and the “incomplete rebalancing” of the labor market as possible risks to inflation, which “could warrant further tightening of monetary policy.” Chairman Powell struck a cautious tone, but he also seemed careful not to commit to further rate increases in this cycle. The market seems to think rate hikes are done, pricing-in a less than 50% likelihood of an increase at the next two meetings.11 

An asterisk to the inflation and interest rate outlook could come in the form of higher crude oil prices. Last week, Brent crude closed above $90/barrel for the first time since November 2022, as OPEC members and Saudi Arabia announced that production cuts would be extended through the end of this year. Saudi Arabia’s production cuts were previously scheduled to end this month. Russia added to expectations for global supply tightness by announcing a reduction in exports through the end of the year.12 We believe the Fed tends to care more about core inflation figures, which strip out food and energy prices, but inflationary pressure in any form could put pressure on the Fed to respond in some way.


[1] Bloomberg SPX Index TRA

[2] Bloomberg SPX Index Earnings Suprise.docx

[3] Resource Center _ U.S. Department of the Treasury.pdf

[4] Consumer Price Index News Release – 2023 M07 Results.pdf

[5] GDPNow – FRBA.pdf

[6] Yardeni forward earnings and revenues as of 8-31-23.pdf

[7] August U.S. Jobs Report_ 187,000 Rise in Payrolls, Unemployment Rate Jumps _ Morningstar.pdf

[8] Consumer prices up 3.2 percent from July 2022 to July 2023 _ The Economics Daily_ U.S. Bureau of Labor Statistics.pdf

[9] BLS empsit.pdf

[10] Job Openings and Labor Turnover Summary – 2023 M07 Results.pdf

[11] Highlights of Fed Chair Powell’s Jackson Hole speech _ Reuters.pdf

[12] Bloomberg Brent Oil Hits $90 a Barrel After OPEC+ Extends Supply Curbs.docx

As of August 31, 2023


July 2023 | Equity Commentary

July 2023 | Equity Commentary


Published on August 16th, 2023

Last month we wrote about the U.S. economy staving off a recession in spite of monetary tightening and broad expectations for a downturn. In July, the Commerce Department confirmed that the U.S. economy continued to grow in the second quarter. The “advance” estimate for annual GDP growth in Q2 2023 was 2.4%, which would mark an acceleration from Q1’s 2.0% rate.1 The “advance” estimate is subject to revision, but the takeaway remains that the U.S. economy is performing better than expected. We believe economic growth combined with stable activity in the jobs market has shifted market expectations towards a “soft landing,” which arguably contributed to the S&P 500 index’s 3.2% gain in July.2 The 10-year U.S. Treasury bond yield also rose 12 basis points in the month, from 3.84% to 3.96%,3 which we would expect to see in response to economic resilience. Looking ahead, history suggests there is a meaningful probability that stocks also perform well in the second half of the year. Since 1970, when the first six months’ return for the S&P 500 was between +10% and +20%, the average second half return was +10.7%, with positive returns 100% of the time.4

A majority of S&P 500 companies have now reported Q2 earnings, and the results appear mixed. FactSet reports that 79% of reporting companies (as of August 4) delivered better than expected earnings-per-share (EPS) results, which is higher than both the 5- and 10-year averages. 65% of S&P 500 companies reported beating revenue estimates, which is below the 5-year average of 69% but above the 10-year average of 63%. Overall earnings are expected to decline by roughly 5% year-over-year in Q2, which is the weakest showing for earnings since 2020.5

On the bright side, we noted many corporations citing resilient U.S. consumers in their reports. Anecdotally, Amazon posted earnings that were nearly double analysts’ estimates, with a large positive contribution coming from its core e-commerce business.6 Consumers also appear to remain enthusiastic about travel this summer, with Airbnb reporting a Q2 profit jump of over 70% from Q2 2022.7 Steady consumer spending data squares with data we’ve seen from the University of Michigan and the Conference Board pointing to improving consumer sentiment. The University of Michigan reported that consumer sentiment rose 11% from June, reaching its highest level since October 2021.8

Activity in the U.S. services sector also remains reasonably healthy. S&P Global reported that Services PMI was 52.3% for July, which is pretty firmly in expansion territory but does mark a deceleration from June’s 54.4% print. The Institute for Supply Management similarly reported July Services PMI at 52.7%, which was 1.2% lower than June’s 53.9% reading. While services activity has been positive for economic growth, the manufacturing sector has been contracting for several months. S&P Global reported July Manufacturing PMI at 49% while ISM reported 46.4%. The upshot is that manufacturing activity, while still somewhat depressed, appears to be improving—both S&P Global and ISM reported better activity in July than in June.9

The Labor Department reported that nonfarm payrolls rose by 187,000 in July, following a revised 185,000 in June. While positive, these figures mark a material slowdown in hiring from last year’s 399,000 new jobs per month pace (on average), and also the 287,000 jobs per month average for the first five months of 2023. Insofar as a slowing pace of hiring reflects a cooling economy, it will factor as positive news for the Federal Reserve and may reduce market expectations for additional rate hikes. Wage pressures remain an issue, however, as private-sector pay increased 4.4% year-over-year in July. This pace of wage gains is not compatible with the Fed’s 2% inflation target.10

In June, inflation as measured by the core personal consumption expenditures (PCE) price index came in at 4.1% year-over-year. Core prices rose 0.2% from May to June. Price pressures have been easing substantially since last year, but 4.1% is still roughly double the Fed’s target.11 Wage gains factor as a negative in the inflation fight, but positive signs exist elsewhere – the producer price index (PPI), for instance, increased just 0.1% month-over-month in June, and final demand less foods, energy, and trade services was up 2.6% year-over-year.12

In the realm of monetary policy, the Federal Reserve raised the benchmark fed funds rate by another 25 basis points at their July meeting, as expected. This move pushed fed funds to a 22-year high, now at a range between 5.25% and 5.5%.13 The Fed’s move did not come as a surprise to markets, but other central bank decisions in late July did – and they happened on the same day.

On July 27, the European Central Bank (ECB) raised rates by 25 basis points, as expected. But what surprised markets was an indication that the ECB may be ready to pause hikes for now, which seems premature given still elevated inflation and commodity price volatility considering the region’s proximity to the Russia-Ukraine war. Europe’s labor force is also more unionized than the U.S., which we would argue makes it more vulnerable to a wage-price spiral.14 The Bank of Japan also surprised markets on the same day by loosening their yield curve controls, which may have contributed to a recent increase in U.S. Treasury yields as investors shifted capital from the U.S. to Japan.15

Finally, China’s economy continues to show real signs of struggle. Exports fell by -14.5% in July, marking the biggest year-over-year decline since the heart of the pandemic in February 2020. Imports also fell by -12.3% over the same period, indicating that the surge in domestic demand many economists were anticipating (post-zero Covid) has not materialized. And where the rest of the developed world is battling price pressures, China has the opposite problem – CPI in July fell -0.3% year-over-year, with producer prices dropping -4.4% over the same period, according to the National Bureau of Statistics. The government’s response thus far has been relatively toothless, in our view, with no concrete plans for meaningful levels of fiscal stimulus.16



[1] Gross Domestic Product _ U.S. Bureau of Economic Analysis (BEA).pdf

[2] Bloomberg: SPX Index TRA

[3] Bloomberg: USGG10YR Index TRA

[4] Bloomberg: 1st Half Returns Analysis

[5] EarningsInsight_080423.pdf

[6], Inc. – Announces Second Quarter Results.pdf

[7] Airbnb profit jumps to $650 million in 2Q as bookings increase, rental rates hold steady – CBS San Francisco.pdf

[8] Surveys of Consumers.pdf

[9] July 2023 Manufacturing ISM® Report On Business®.pdf

[10] U.S. Economy Added 187,000 Jobs in July in Latest Report – WSJ.pdf



[13] Fed meeting July 2023_ Fed approves hike, interest rates rise to highest level in more than 22 years.pdf

[14] ECB rate decision July 2023_ raises rates by 25 basis points.pdf

[15] Bank of Japan loosen’s YCC, cites ‘greater flexibility’ and jolts markets.pdf

[16] China consumer prices fall first time in 2 years, deflation fears grow.pdf

As of July 31, 2023


Second Quarter 2023 | Fixed Income Commentary

Second Quarter 2023 | Fixed Income Commentary

Published on July 27th, 2023

Investor concerns over “sticky” inflation persisted during the second quarter as core measures of the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE), which exclude the more volatile components such as food and energy, continued to come in well above the Federal Reserve’s 2% target. Core CPI increased by 5.5% and 5.3%,1 and Core PCE increased by 4.7% and 4.6%, for the 12-month periods ending in April and May,2 respectively. Despite sustained inflationary pressures, recent macro-economic data have generally surprised to the upside and demonstrated the resiliency of the U.S. economy. First quarter real GDP was revised up from 1.3% to 2.0%,3 consumer confidence reached the highest level since January 2022, and after declining in March,4 retail sales gained 0.4% and 0.3% in April and in May,5 respectively. Additionally, the labor market remains historically tight6 and measures of household wealth are still high.7 Overall, the economy appears to be strong, which has driven real yields higher8 and contributed to the increase in 2Y and 10Y Treasury yields of 87 bps and 37 bps during the second quarter, respectively.9

In response to above-target inflation, a tight labor market and a strong economy, the FOMC raised the Federal Funds Rate by 25 bps in May, for a total of 500 bps of hikes over a 14-month period.10 Moreover, although the FOMC paused on additional rate hikes in June, the Federal Reserve’s Summary of Economic Projections (released each quarter) revealed forecasts for two additional 25 bps hikes this year, and the chances of a 25 bp hike in July increased to 87% as of quarter end.11

In addition to a resilient U.S. economy, we believe stresses in the banking sector also appear to have moderated in recent months. As mentioned in previous commentary, the banks that failed in March had a significantly higher proportion of uninsured deposits, and less stable deposit bases, than a majority of U.S. banks, in our view. Roughly 88% and 68% of Silicon Valley and First Republic Banks’ deposits were uninsured, and both banks experienced drastic declines in deposits of over 80% and 40%, in the first quarter, respectively. Many of the regional banks we own have over 50% of deposits in account sizes below the $250,000 FDIC insured level, which puts them at lower risk of rapid and extreme deposit loss, in our opinion.12 Additionally, weekly deposit statistics for U.S. banks have alternated between rising and falling throughout the second quarter, leaving them largely unchanged over the past ten weeks (for the period ending June 28) and demonstrating signs of stabilization. In fact, for the largest U.S. banks, deposits have increased in 26 of the past 30 weeks.13 U.S. Banks’ combined borrowings from the Federal Reserve’s discount window and Bank Term Funding Program (BTFP) have also declined from a peak of $165 Billion, just after the failure of Silicon Valley Bank, to $105 Billion as of June 28th; indicating declining usage of the Federal Reserve’s emergency lending facilities.14

We have previously highlighted the potential earnings headwinds in the U.S. financial sector from exposure to commercial real estate, and specifically office properties. While we believe that work from home and office vacancy trends may continue, we view the potential threat posed to banks’ earnings and capital as manageable for several reasons:  

  1. Total office property commercial real estate exposure for any of the largest U.S. banks we own is at most ~4% of total loans.15
  2. Lease turnover is staggered over multiple years so the impact from lease expirations in multi-tenant properties won’t be felt all at once. Of the $5.6T of commercial real estate held by banks, roughly 20% is backed by office properties, of which it’s estimated that only ~$55-60 billion held on banks’ balance sheets is up for renewal in the next year.16
  3. Declines in property values don’t necessarily prompt loan defaults. Even if “unrealized” losses indicate that loan values are now equal to the re-appraised value of commercial properties, if rental income covers debt service costs, the property will likely remain performing.17
  4. Banks can build reserves for future losses ahead of time, effectively creating a capital buffer for potential losses should they materialize. According to the Federal Reserve’s weekly H.8 report, for the period ending June 28th, the largest U.S. banks have increased loan loss reserves by over 16% on a year over year basis.13 While holding excess reserves can weigh on banks’ earnings and equity prices over the near term, it is supportive from a credit perspective to retain capital for future losses.
  5. Losses from commercial real estate ultimately impact banks’ balance sheets through quarterly net charge offs, which occur over consecutive periods, as opposed to all at once. In fact, in the height of the financial crisis, losses from commercial real estate peaked at just 3.27% in the fourth quarter of 2009.15

As part of an annual check-up on the health of the financial system, the largest U.S. Banks recently passed their 2023 stress tests and demonstrated the ability to handle the following hypothetical adverse economic developments: “The severely adverse scenario is characterized by a severe global recession accompanied by a period of heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. The U.S. unemployment rate rises nearly 6-1/2 percentage points from the starting point of the scenario in the fourth quarter of 2022 to its peak of 10 percent in the third quarter of 2024. The sharp decline in economic activity is also accompanied by an increase in market volatility, widening corporate bond spreads, and a collapse in asset prices, including a 38 percent decline in house prices and a 40 percent decline in commercial real estate prices.” Further, “Declines in commercial real estate prices should be assumed to be concentrated in properties most at risk of a sustained drop in income and asset values: offices that may be affected by remote work or hospitality sectors that continue to be affected by reduced business travel.”18 Therefore, according to the 2023 stress test results, the largest U.S. banks can handle a 40% decline in CRE values, concentrated in office properties and accompanied by various other negative variables, while maintaining capital above the respective thresholds and continuing to lend to households and businesses.

In addition to easing pressures in the banking sector, we believe credit conditions in the broader corporate market also appear to have improved. In aggregate, investment grade companies’ profit margins, leverage ratios, cash balances and quick ratios from first quarter earnings results were all better relative to the prior quarter.19 Although interest coverage levels dropped slightly from the prior quarter, they generally remain at healthy levels, in our opinion. Overall, we believe the sector’s better fundamentals drove investment grade credit spreads to decline by 15 bps throughout the second quarter.20

Consequently, fixed income returns were relatively flat in the second quarter as the impact from higher government yields was largely offset by credit spreads tightening, in our view. CIP returned 0.3% (gross) and 0.01% (net), while the Bloomberg Intermediate US Government Credit Index, the Bloomberg Intermediate US Corporate Index, and the ICE BofA Fixed Rate Preferred Securities Index returned -0.8%, -0.2% and 1.22%, respectively.21

Looking ahead, we continue to monitor the portfolio for possible risks in the banking sector relating to deposit flows and asset quality. While we expect potential headwinds to bank earnings over the near term, we do not believe the banks we own to be at similar risk of failure as those that fell in March. Proposals for further regulation on capital and liquidity are already underway for large and mid-sized banks with assets > $100 million,22 which we believe to be credit positive in the long run. We also remain selective with respect to non-financial issuers’ credit quality, as we recognize the potential for credit spreads to widen from their currently tight levels. Even so, we view the overall risk/reward of the current yield environment as attractive from a historical context as today’s all-in corporate bond and preferred securities yields are at some of the highest levels they’ve been in years.23



2. Personal Income and Outlays, May 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

3. Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP.pdf

4. US Consumer Confidence.pdf

5. Monthly Retail Trade – Sales Report.pdf

6. Civilian unemployment rate.pdf

7. Households; Total Assets, Level (BOGZ1FL192000005Q) _ FRED _ St. Louis Fed.pdf

8. Bloomberg: GTII10 Govt Index Function

9. Bloomberg USGG10YR Index; USGG2YR Index Function.docx

10. Federal Reserve Board – Federal Reserve issues FOMC statement.pdf

11. fomcprojtabl20230614.pdf

12. Barclays Research and SP Global Market Intelligence.doc

13. h8.pdf

14. h41.pdf

15. Barclays_Bank_Stock_Outlook_Forecasting_and_Valuation-2023 (1).pdf

16. Global_Outlook_The_case_for_US_exceptionalism.pdf

17. Thinking Macro_ Office CRE is a problem, just not a macro one.pdf

18. bcreg20230209a1.pdf

19. Barclays Research

20. Bloomberg: US Agg Credit Avg OAS.docx

21. Portfolio Accounting System of Axys, an Advent Licensed Product

22. Speech by Vice Chair for Supervision Barr on bank capital – Federal Reserve Board.pdf

23. Bloomberg OAS ICE Bofa Fixed Rate Preferred Securities Index YTW US Corp Index YTW .docx

As of June 30, 2023


June 2023 | Equity Commentary

June 2023 | Equity Commentary

Published on July 11th, 2023

Many economists have spent the past year anticipating a US recession. It did not arrive in the first half of 2023. The Commerce Department reported that real gross domestic product grew at a 2% annualized rate in the first quarter, which marked a significant upward revision from the previous 1.3% estimate. Exports and consumer spending were critical drivers of the additional growth, with the latter receiving continued support from a strong jobs market.1 Employers have added approximately 1.6 million new jobs so far in 2023, which is nearly double the pace set in 20192 – when the pre-pandemic economy was considered quite strong. In our opinion, economic outcomes in the year’s first half might aptly be described as “not as bad as expected,” which arguably contributed to the strong showing in equity markets. It appears that the regional banking crisis did not produce a broader financial contagion, the debt ceiling standoff ended without default, and higher interest rates have not pushed employment or growth materially lower. Stocks benefited at each turn, with the S&P 500 jumping +6.6% in June and rallying +16.9% over the first six months.3 The 10-year US Treasury bond sold off slightly in June to finish the month at 3.84% but remained mostly flat for the year.4    

 The Federal Open Markets Committee voted unanimously at their June meeting to hold the benchmark fed funds rate steady at 5% to 5.25%. Minutes from the meeting suggest that Fed officials largely believe additional rate increases may be needed to tighten policy further.5

Inflation has been trending lower but remains well above the Fed’s 2% target. Headline Personal Consumption Expenditure (PCE) inflation was up 4.9% year-over-year in the first quarter, though May’s print broke below the 4% level with a 3.8% annualized increase. Core prices, which exclude food and energy, registered at 4.6% in May, a slight improvement from April’s 4.7% level.6 We believe inflation should continue to trend lower in the second half of the year, but the distance between current readings and the Fed’s target suggests at least one or two more rate hikes are likely in 2023.

Contributing to the thesis of additional rate increases is the still-too-strong labor market, with the Labor Department reported employers increased payrolls by an average of 314,000 jobs per month through May. Payrolls do not tell the entire story, however, and other key metrics suggest the jobs market may be slightly weaker than headlines suggest.7 While June’s ADP report was an addition of nearly 500,000 jobs, more than double the estimate, the Bureau of Labor Statistics non-farm payrolls number for June was just 209,000, about 10% below consensus and a clear downtick from the average of prior months.8  Initial applications for unemployment benefits, a proxy for layoffs, are up approximately 20% this year, albeit from a very low level, and workers are quitting jobs at a much slower rate than last year – suggesting that prospects for better jobs with higher pay may be diminishing. The ‘quits rate’ (measures job separations triggered by the employee) has been trending lower since its peak at 3% in April 2022, but ticked back up to 2.6% in June, the same level where it finished 2022.7 

The Institute for Supply Management’s June report on services and manufacturing activity was mixed, in our opinion. The US services sector remained in expansion mode for the sixth consecutive month, with Services PMI registering at 53.9. Among the strong contributors to services sector activity was the Business Activity Index, which rose 7.7% from May, and the New Orders Index, which increased by 2.6%. On the other hand, manufacturing activity remains weak. The June Manufacturing PMI was 46.0, a nearly 1% drop from May and the seventh straight month of contraction. Notably, the forward-looking new orders index remains firmly in contraction territory, at 45.6, while order backlogs fell and inventories shrank. All of these metrics point to slower demand. One positive to parse from the data was the price index, which fell to its lowest level in 2023. Easing price pressures factor as a positive for inflation and interest rates, and also signal improved supply chain conditions. 9

US consumers continue to support economic growth, with retail spending rising a modest 0.1% in May.6 When adjusted for inflation, spending was flat, which implies consumers are not tapped out but also not spending at robust levels. Monthly auto sales continue to trend upward as supply chain pressures have eased and helped availability of vehicles, while pent-up demand from recent years supports new car purchasing activity.10

The Conference Board’s measure of consumer confidence shows that Americans are largely upbeat about economic conditions, with the index rising to 109.7 in June from 102.5 in May.11 Strong jobs and wages  helping, but we may see some pressure build in the fall when federal student-loan borrowers must resume making monthly debt repayments. We expect the market impact to be muted, however, given that student-loan payments are estimated to amount to about $6 billion to $9 billion a month – a small percentage of the $1.5 trillion that US consumers spend on goods and services every month.6

Overseas, China’s economy continues to show signs of weakening following an initial post-zero-Covid bump. The key manufacturing sector contracted for a third straight month in June, with a subindex on employment falling to 48.2 in June – a sign of continued stress in the labor market. Demand for Chinese goods is facing domestic and international headwinds, with China’s consumers losing steam and foreign buyers facing high inflation pressures. Political tensions are also weighing on economic prospects, as pressure is mounting on manufacturers and multinational corporations to diversify their supply chains and shift production out of China. Global equity markets would likely cheer a stimulus package from Chinese government officials to boost economic growth in the second half of the year, but it remains unclear whether Beijing will enact any meaningful new measures.12


1. Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, First Quarter 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf

2. Labor Market Headfake_ Key Report Could Be Overestimating Job Growth – WSJ.pdf

3. Bloomberg: SPX Index TRA Function

4. Bloomberg USGG10YR Index

5. Fed rate decision June 2023_ Fed pauses rate hikes, sees two more ahead this year.pdf

6. U.S. Inflation, Consumer Spending Growth Cooled in May – WSJ.pdf

7. Americans Have Quit Quitting Their Jobs – WSJ.pdf

8. Wage Gains, Low Unemployment Keep Pressure on Fed; Hiring Slowed in June, Jobs Report Shows – WSJ.pdf

9. June manufacturing and services reports

10. U.S. New-Vehicle Sales Rise an Estimated 13% in First Half of the Year – WSJ.pdf

11. US Consumer Confidence Improved Substantially in June.pdf

12. China’s Economy Shows New Signs of Weakness – WSJ.pdf

As of June 30, 2023


May 2023 | Equity Commentary

May 2023 | Equity Commentary

Published on June 13th, 2023

The debt ceiling debate featured prominently in financial headlines throughout May, but it appeared equity markets seemed far less concerned about default than media commentators. Volatility remained relatively subdued for the month, with the S&P 500 rising for three consecutive weeks to finish up +0.4%.1 However, we believe the rally lacked breadth—the top five contributors to the S&P 500 (Nvidia, Alphabet, Amazon, Microsoft, and Apple) added 2.4% to the index return for the month, while the remaining 495 companies subtracted -2.0%.2  A similar pattern has played out throughout 2023, with the capitalization-weighted S&P 500 up double-digits for the year but an equal-weighted version of the index roughly flat.3 In bond markets, yields on short-duration Treasury bills rose sharply with debt ceiling uncertainty,4 but longer-duration Treasury bonds showed less pressure. The 10-year US Treasury bond yield rose only slightly in May from 3.59% to 3.64%.5

 Just a few days before the “X date” of June 5, President Joe Biden and House Speaker Kevin McCarthy reached a deal to suspend the debt ceiling in exchange for spending cuts totaling $1.5 trillion over ten years (according to the Congressional Budget Office). The bill passed with comfortable margins of 314 to 117 in the House and 63 to 36 in the Senate. Among the spending cuts were $20 billion in reduced funding for the IRS and the setting of an official end date to the Biden administration’s pause on student loan repayments. But a close look at the deal shows no meaningful change to the US government’s debt growth trajectory over the next several years, in our opinion. By some estimates, the deal would only reduce federal spending from its current baseline by about 0.2% of GDP over the next two years.6

The May US jobs report underscored ongoing strength in the services sector, particularly in transportation, health and education, and leisure and hospitality. Nonfarm payrolls rose by 339,000, well above consensus estimates and up from 225,000 in April. Household survey data showed that the number of unemployed people increased by 440,000 to 6.1 million, which factored into the unemployment rate rising by 0.3% in May to 3.7%.We believe strong momentum in the labor market continues to frustrate the Federal Reserve, but one bright spot in May’s jobs report was slowing wage pressures. The average hourly earnings in May increased 0.3% from April, slightly decelerating from the 0.4% increase the previous month. Year-over-year wage growth in May rose by 4.3%, a slight improvement from April’s 4.4% YoY rate.7 The Fed has indicated that 3.5% year-over-year wage growth could be acceptable and compatible with its inflation target, which puts current wage growth within a percent of that goal.8

The Fed raised the benchmark fed funds rate by a quarter percentage point at the May 2-3 meeting. The idea that the Federal Reserve may pause interest rate increases at its June 13-14 meeting received some clarity in May. Comments made by Fed leadership in the month appeared to confirm the pause, while also leaving the door open to possibly resume hikes later in the summer. Fed governor Philip Jefferson – who has been nominated to serve as Fed vice chair – said that “a decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.” He added that “skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”9

 Given that inflation remains sticky, with core CPI rising 5.5% year-over-year in April,10 the Federal Reserve’s motivation to ‘pause’ hinges on two factors, in our opinion. The first is acknowledging that rate hikes work on a lag, so the full effect on the economy may not be known for months or quarters. The second factor is the regional bank crisis, which may yet result in credit tightening that can serve as a headwind on economic activity and new investment. The April Senior Loan Officer Opinion Survey indicated banks are tightening lending standards, but it’s also worth noting that banks have been tightening for several months now, even preceding the bank stress. March’s failures did not notably accelerate that tightening, according to the April survey.11

Overseas, an economic resurgence in China post-zero-Covid has yet to materialize as investors initially hoped. China’s official purchasing managers index (PMI) for manufacturing activity fell to 48.8 in May, which indicates contraction. Services activity expanded, but we would note that May’s reading marked a deceleration from April’s and also the weakest reading in four months.12 We believe China also faces many structural problems that may be contributing to underwhelming growth, like a faltering property boom, a very high youth unemployment rate, and strained relationships with Western countries.  


1. Bloomberg: SPX Index TRA

2. Credit Suisse: U.S. Return Composition – June 2023 pdf











As of May 31, 2023


April 2023 | Equity Commentary

April 2023 | Equity Commentary

Published on May 12th, 2023

Stocks moved slightly higher in the month of April, with the S&P 500 index rising 1.6%. Eight of 11 S&P 500 sectors posted positive performance, with value stocks slightly outperforming growth stocks.1 Regional bank stress continued to hover in the headlines throughout the month, culminating with the closure of First Republic Bank on May 1—a failure that many market watchers had come to expect.2 Trading in regional bank stocks remained volatile, but the muted reaction from the broader markets suggests fear of contagion remains relatively low. The fixed income markets also showed little signs of investors fleeing for safety, with the 10-year Treasury bond yield moving only slightly lower in April, from 3.48% to 3.44%.3

The news of First Republic Bank’s failure also came with an announcement from JPMorgan and the FDIC. Under the agreement, JPMorgan would assume most of First Republic’s $92 billion in deposits and would buy most of the bank’s assets, with the FDIC agreeing to share losses on some of First Republic’s loans. JPMorgan CEO Jamie Dimon and Federal Reserve Chairman Jerome Powell both made statements suggesting that First Republic’s failure marked the end of this chapter of the regional bank stress,4 but it’s also true that crises in confidence tend to be very difficult to predict. Regional bank stocks remain under pressure, and we will still need to monitor the downstream effects on credit conditions and loan activity as the year progresses.

The Bureau of Economic Analysis (BEA) reported that the US economy grew by 1.1% in the first quarter, well below consensus forecasts of 1.9% and also the 2.6% growth rate posted in Q4 of last year. According to the BEA, the growth deceleration was primarily driven by a decline in inventories and business investment (as measured by nonresidential fixed investment). A bright spot in the GDP report was consumer spending, which benefited from a surge in retail sales posted early in the year. Imports and exports also increased.5

A majority of S&P 500 companies have now reported Q1 earnings, and the overarching takeaway is that corporations largely performed better-than-expected. As of May 5, with 85% of S&P 500 companies reporting results, 79% posted a positive earnings-per-share (EPS) surprise and 75% beat consensus expectations on revenues. According to Factset, Q1 2023 marked the best earnings performance relative to expectations since Q4 2021.6 Notably, large money center banks like JPMorgan, Citi, and Wells Fargo all reported strong earnings and expanding net interest margins,7 which was partly driven by an influx of new customers leaving regional banks. 

The Bureau of Labor Statistics reported that inflation (consumer price index, CPI) rose by 0.4% in April, following a 0.1% increase in March. Year-over-year, CPI registered at 4.9% in April, down from March’s 5% and February’s 6% year-over-year increase. April’s CPI reading marked the smallest increase since May 2021. Core prices, which strip out food and energy, were higher at 5.5% y-o-y, largely because of pressure in services prices—and specifically the shelter component, which makes up one-third of the index. The upshot here is that shelter prices measure what renters and homeowners are paying for new and existing leases, which means meaningful declines in rents will not show up immediately in the CPI number.8 An index of median rents in the US showed the first year-over-year decline since March 2020. Assuming the trend continues, the shelter component should contribute significantly less to the CPI number by this summer and fall.

The Federal Open Market Committee (FOMC) met on May 2-3 and announced another 25 basis point increase for the benchmark fed funds rate, bringing the target rate to the 5% to 5.25% range. In the official statement released after the meeting, the Fed importantly did not include the following sentence: “The Committee anticipates that some additional policy firming may be appropriate.” 9 We believe this omission is perhaps the clearest sign that the benchmark fed funds may have arrived at its terminal rate in this cycle. Assuming there is not a negative inflation surprise in the next few weeks, we would expect the Fed to “pause” at its June meeting and hold rates steady until inflation falls much closer to its 2% target.

While the economy has shown some signs of cooling in response to higher rates, the labor market has not. April’s job report showed a 253,000 gain in nonfarm payrolls, following a 165,000 increase in March. The unemployment rate fell to 3.4% in April from 3.5% in March, as 43,000 people left the work force and the number of unemployed Americans fell by 182,000. The three-month moving average of job growth in the US registered at 222,000, which shows hints of softening but not convincingly so.10

Looking ahead in May and early summer, the debt ceiling issue will likely figure prominently in the headlines. Market participants have largely come to expect a debate over raising the debt limit every few years or so, and many of the same warnings from Treasury officials and demands from political parties play out as they have in years past. It appears that the US will be able to meet obligations and debt payments for another month or two, which unfortunately for investors just extends the timeline that this story is likely to play out in the press. There have been some positive developments recently, with the House’s passage of the Limit, Save, Grow Act in late April11 and a meeting between House leadership and President Biden in early May. While neither development is likely to result in a deal on the debt limit, they at least serve as a starting point for negotiations.


1.S&P Dow Jones Indices, Market Attributes US Equities

2.FDIC_ Failed Bank Information for First Republic Bank, San Francisco, CA.pdf

3.Resource Center _ U.S. Department of the Treasury.pdf

4.JPMorgan Chase Takes Over First Republic After FDIC Seizes Bank – WSJ.pdf

5.Gross Domestic Product, First Quarter 2023 (Advance Estimate) _ U.S. Bureau of Economic Analysis (BEA).pdf







As of April 30, 2023


Banking Crisis, 2023 Edition: New Risks, But Important Offsets | Quarterly Conference Call

Banking Crisis, 2023 Edition: New Risks, But Important Offsets

Recorded on May 4th, 2023

Robert Meyer, CFA, Senior Portfolio Manager, and Richard Konrad, CFA, CFP®, Senior Portfolio Manager, sat down to discuss the latest updates in the financial markets from this past quarter. In this webinar, they also discussed:

  • Capital Markets: Off to a Strong Start Even as Recession Clouds Gather
  • The Inflation Dragon: Will the Fed Finally Slay This Beast?
  • Debt Ceiling Showdown: America Runs Up Its Credit Card Limit–Again

First Quarter 2023 | Fixed Income Commentary

First Quarter 2023 | Fixed Income Commentary

Published on April 18th, 2023

The financial sector came under pressure in the first quarter following the failure of several U.S. banks.1 While the prices of many stocks and preferred equity issued by banks were negatively impacted as a result, at present, we do not believe the issuers of the securities held in our client portfolios exhibit the same risk factors which contributed to the recent bank failures. In our view, these factors included significant exposure to cryptocurrency deposits, concentration of deposits in too few firms or sectors, high percentage of uninsured deposits, and securities portfolios with material unrealized losses in excess of the bank’s tangible equity capital.


In simplified terms, when a bank takes in deposits, it can either make loans with those funds or invest them in fixed income securities, typically government or agency bonds. When a depositor withdraws cash from a bank, the bank can either sell a portion of its fixed income holdings or borrow from various sources to fund the withdrawal request. We believe several recent bank failures were characterized by very rapid and significant requests for withdrawals (a “run” on the bank) combined with the inability to quickly access cash to fund those withdrawals, without realizing substantial losses on banks’ securities portfolios.  


Silvergate developed the first digital currency payments network by an FDIC insured publicly traded bank in 2019.2 Companies that utilized its payments network included the major crypto currency exchanges, and the exchange’s clients kept large deposits of digital currencies at the bank. Moreover, the top ten depositor firms by market share made up roughly 50% of total deposits.3 Silvergate appeared to have been troubled with declining deposit balances ever since the failure of FTX (a cryptocurrency exchange), which filed for bankruptcy in November 2022.4 In total, $8.1B of deposits (68% of total deposits) left the bank during the fourth quarter 2022,5 and on March 8, 2023 the bank announced that a voluntary winddown of operations was “the best path forward”.6

Silicon Valley Bank

SVB was a leading bank to the technology and venture capital community in Silicon Valley whose strong relationship with these companies contributed to its substantial deposit growth over the last several years, in our view.  In recent months, however, it appears the bank’s deposits declined at a rapid pace due to the high cash burn rate of their clients combined with a lesser amount of new venture funding for startups coming into the bank as new deposits.7 As a result, the bank had to sell a portion of its securities portfolio at depressed market values and “realize” losses of $1.8 billion.8 SVB had engaged Goldman Sachs to sell additional equity to help repair the balance sheet damage incurred from the realized losses, but quickly deteriorating market conditions eliminated that possibility.8  We believe the combination of this news, along with Silvergate’s downfall just days earlier, caused many depositors to have serious concerns about the financial stability of the bank, and many of them withdrew their funds at the same time, triggering a run on the bank.

In terms of overall credit quality, SVB was very well capitalized.8 The bank’s tier 1 capital ratio was in excess of 15% (well above the required minimum), the average loan-to-value (LTV) on the mortgage portfolio was low, and loans only made up 35% of total assets.8 Moreover, although SVB was a lender to the technology and venture capital industry, its overall exposure to the riskiest elements of this ecosystem was not high.8

In hindsight, we believe what investors overlooked at SVB was the concentration of its deposit base in one industry, venture-funded technology companies, whose secular trends exposed the bank to volatile and ultimately skittish depositor flows. While this alone may not have been enough to cause the bank to fail, when coupled with the high proportion of uninsured deposits, significant unrealized losses in the securities portfolio (large enough to wipe out the bank’s tangible equity capital), and the securities portfolio comprising a substantial portion of the bank’s total assets; taken together we believe these factors contributed to the bank’s overall failure.

Credit Suisse

We believe its Swiss National Bank-brokered combination with UBS helped limit contagion. Because Credit Suisse counterparties Greensill and Archegos failed in 2021,9 U.S. banks had time to reduce their counterparty exposure to the Swiss bank, in our view. The Fed stress tests also incorporate counterparty failures and suggest to us that this potential issue will not cross the Atlantic. The failure of Credit Suisse’s AT1 securities caught some investors by surprise, and a subsequent move to redeem AT1 securities by Deutsche Bank sparked a widening in the German bank’s CDS spreads and a selloff in its equity.10 Our strategy does not hold any European bank securities. 

Portfolio Review

In the wake of these recent bank failures, we have engaged in a detailed review of all the bank-issued securities we own in client accounts for similar risks: deposit concentration in too few sectors or firms, potential deposit flight from high levels of uninsured deposits, and potential unrealized losses embedded in securities portfolios that outweigh banks’ tangible equity capital. 

At present, we do not believe the banks to which we have exposure exhibit deposit concentration that could potentially be problematic; either via over-exposure to a single sector (like SVB) or via too few depositor firms (like Silvergate’s ten largest depositors). We believe the banks in which we have invested have a more diversified and stable deposit base.

We have also re-evaluated the portion of a bank’s deposits that are above the $250,000 FDIC guaranteed level. To us, this indicates the degree to which deposits could potentially be at risk of leaving the bank. Of the 25 largest U.S. Banks, SVB had the highest ratio of uninsured deposits to total deposits, at 88%. The bank with the second highest ratio of uninsured deposits to total deposits was First Republic, at 68%, which was a contributing factor towards our decision to sell the security. At present, we do not believe the other banks in which we are invested face a similar risk of losing deposits at a rapid pace. 11

Taking the analysis further, we assessed the potential impact on each bank’s tangible equity capital if all unrealized losses in “held to maturity” categories of securities portfolios, which record securities at book values as opposed to market values, had to be realized. An analysis of banks we own shows that all except for SVB and Schwab would have sufficient tangible equity capital (a tangible common equity to assets ratio > ~3%) remaining if all securities were sold, and all unrealized losses (after-tax) were realized. 11,12,13

For SVB and Schwab, tangible common equity ratios would fall to or slightly below zero in this situation.11,12,13 While this could have been a contributing factor to SVB’s failure, we don’t believe Schwab is at risk of facing similar pressures at this time. To be in a situation where the entire securities portfolio may need to be sold, deposits would also need to rapidly decline, and access to enough liquidity would also not be available, in our view. In Schwab’s case, uninsured deposits make up less than 20% over all deposits, which to us indicates that the bank is not at high risk of facing rapid deposit decline.12,13 We also believe Schwab has access to plenty of liquidity should the need arise. As Schwab’s CEO Walt Bettinger recently stated in the WSJ, “There would be a sufficient amount of liquidity… to cover if 100% of our bank’s deposits ran off,” “Without having to sell a single security.”14 Finally, unrealized losses in securities portfolios as of quarter-end 2022 have likely improved materially as Treasury yields have declined substantially since the crisis. 15

Subsequent to the bank failures in March, the Federal Reserve created a new liquidity facility (the Bank Term Funding Program or BTFP) which aims to help banks meet the needs of their depositors and help forestall any further bank liquidity problems.16 For the next 12 months, banks will be able to pledge their government bonds and agency mortgage-backed securities (regardless of the securities’ current market values) at the Federal Reserve and receive a loan back in return at the par-value amount of the securities.16 In other words, banks would not be forced to sell securities at depressed market values in times of stress, given the opportunity to borrow more than they are worth from the Fed. Banks also have access to additional liquidity sources such as the Federal Reserve’s discount window, as well as the Federal Home Loan Bank, where other types of collateral (besides treasuries and agency MBS) can be pledged.17


While we do not foresee another bank failure impacting the portfolio at this time, we do believe bank profitability could face potential headwinds in the future. To retain customer deposits, banks may have to pay higher rates on deposits to prevent them from leaving and seeking higher returns. Banks may also reduce lending activity to hold more liquidity on hand just in case deposits were to decline. Moreover, should banks have to utilize additional sources of liquidity, they would have to pay interest on the borrowed funds to do so. Each of these factors could potentially reduce banks’ net interest margin, which is the difference between what banks earn on their assets vs. what they pay on their liabilities, and this could negatively affect their overall profitability.

Another area we are watching is the commercial real estate sector, specifically banks’ and life insurers’ loan exposure to office and retail properties. Higher interest rates and a shift to work-from-home trends that may permanently increase office vacancy levels could continue to pressure valuations of some commercial real estate. While this could have an impact on banks’ earnings or capital ratios in the future, for the US banks we own, we do not expect the impact to be material. In a stressed scenario that assumes a 21% default rate and 41% loss severity on office property loans and a 15% default rate and 42% loss severity on retail property loans, the annualized after-tax impact to banks’ capital ratios would be less than < 1%.18 For insurance companies, we believe the impact from deteriorating commercial real estate and CMBS fundamentals would also be manageable. Life Insurance companies’ commercial real estate loans are characterized by low LTV’s with long duration fixed rates and debt service coverage, on stabilized properties with very low overdue/default rates, and their CMBS exposure exists to highest rated CMBS tranches.18 In a draconian scenario that assumes office occupancy declines of 30% and default rates that reach 35%, investors in investment grade tranches of CMBS would generally be protected.18

We also continue to monitor the overall level of deposits in U.S. banks. Each week, the Federal Reserve releases reports which show the aggregate deposit levels for large and small/mid-sized banks have declined $411 billion since the first week of March.19 While this may seem like a large amount, it represents just ~2% of all U.S. banks’ deposits. Further, the largest banks may have been beneficiaries of the crisis because depositors believe they are too big to fail. The weekly Fed data shows a market share gain by the largest banks since the crisis even as total systemwide deposits have declined.19 In fact, Bloomberg reported that Bank of America collected $15 billion of deposits in the first week following the SVB and Signature failures.20 Additionally, the $30 billion rescue of First Republic by the private sector suggests the cohort of large depositor banks have more than sufficient liquidity.21 We hold many securities of this cohort whose credit may have improved in the last month.  Weekly regional Federal Reserve data also confirms that the abundance of short-term borrowings have been concentrated in the New York and San Francisco Federal Reserve Banks.22 To us, this indicates that the crisis has not spread far beyond those areas where Silvergate, Silicon Valley and Signature Banks are located.

In terms of the overall economy, we expect the Federal Reserve to rely on incoming data to determine appropriate monetary policy moving forward. On one hand, consumer spending is still growing at an annual rate in the high single digits23, the labor market is still strong22, corporate balance sheet fundamentals are solid24, supply chains are recovering and credit losses at banks are still very low, implying that the economy is still in good shape.25 On the other hand, we believe given the recent banking crisis, expectations for lending standards to tighten, and what appears to us to be a slew of recent weaker macroeconomic data that have missed expectations, the outlook for the economy and the Federal Reserve’s future actions may become more uncertain.

At present, we believe the portfolio is well positioned to withstand potential volatility from macro-economic uncertainties and any additional impacts from the crisis in the banking system. We will be scrutinizing first quarter earnings reports for uninsured deposit flows, the value of securities holdings, and any borrowings from emergency liquidity facilities. We will also be focused on the quality of CRE portfolios including delinquencies and credit reserves. We do not expect the banks we own to experience similar rapid deposit declines, and we believe the situation for any bank that needs quick access to liquidity has improved due to recent actions taken by the Federal Reserve in creating the BTFP. We continue to monitor the portfolio’s credit quality and interest rate sensitivity, as well as US banks’ deposit levels, exposure to commercial real estate and other metrics that could potentially impact any of our positions.








7 Q1-2023-Investor-Letter.FINAL-030823.pdf

8 Q1-2023-Mid-Quarter-Update-vFINAL3-030823 (1)

9 Credit Suisse, Burned By Archegos And Greensill Scandals, Shifts Focus To Wealth Management In Overhaul.pdf

10 Deutsche Bank shares slide after sudden spike in the cost of insuring against its default.pdf

11 Barclays: “State of the Industry Spring 2023” Slides

12 schwab_annual_report_2022.pdf

13 Calculations based on data from Schwab’s Consolidated Financial Statements as of 12/31/22


15 Bloomberg USGG10YR Index.docx

16 Federal Reserve Board – Federal Reserve Board announces it will make available additional funding.pdf


18 JPM_Commercial_Real_Esta_2023-03-23_4367489.pdf

19 (For the weeks ending March 08, 2023 – March 29, 2023)






25 Global Supply Chain Pressure Index_ March 2022 Update – Liberty Street Economics.pdf

As of March 31, 2023


March 2023 | Equity Commentary

March 2023 | Equity Commentary

Published on April 11th, 2023

March’s financial news cycle was dominated by the high-profile failures of Silicon Valley Bank and Signature Bank New York on March 10, spanning through to March 19 when UBS announced it was buying beleaguered Credit Suisse for $3.2 billion in a deal brokered by Swiss authorities.1 Apart from pronounced selling pressure across a handful of regional bank stocks, the equity markets were largely resilient to rising uncertainty over the health of the banking system. The S&P 500 and Nasdaq posted three consecutive weeks of gains beginning March 13, finishing the first quarter up +7.5% and +17.0%, respectively.2, Outperformance of growth and technology stocks may have been a wager that the banking crisis would hinder economic growth later in the year, thereby raising the chances of easier monetary policy sooner than previously expected. In the fixed income markets, US Treasury bonds across nearly all durations rallied for the month, with the 10-year bond yield declining from 3.92% to 3.47%.3 The 2-year Treasury pulled back in the months’ final days to finish above 4%, which further widened the yield curve inversion.4

Historically, bank failures tend to be driven by credit risk, but Silicon Valley Bank (SVB) and Signature Bank New York (SBNY) were unique cases where large bases of undiversified, uninsured deposit liabilities were mismatched with fixed rate securities that had fallen in value as interest rates rose – eroding the banks’ capital. SVB and SBNY ran into major problems in 2022 when the venture capital/startup world saw funding evaporate and the cryptocurrency industry suffered major setbacks. This led many early-stage companies (clients of SVB) and crypto firms (clients of SBNY) to draw down cash reserves to continue funding operations, which eventually spiraled into a run-on deposits once the banks’ balance sheet problems were exposed.5

Credit Suisse’s forced sale a week later made it seem like a global bank contagion could be underway, but the Swiss lender had already been troubled for months if not years. The bank arguably collapsed under the weight of unstable management, investment banking losses, and a string of bad bets—including its partnership with now-bankrupt Greensill Capital and a $5 billion loss from the collapse of Archegos Capital Management. Last October, rumors of the banks’ problems on social media led to a major outflow of wealthy clients. In 2022, deposits fell more than 40%, and assets plummeted by 30%.6

In response to the SVB and SBNY failures, the Federal Reserve, U.S. Treasury, and Federal Deposit Insurance Corp. issued a joint statement declaring SVB and SBNY “systemic risks,” which opened the door for making all SVB and SBNY depositors whole—including those with deposits over the FDIC-insured $250,000 limit. The Fed also created a special emergency facility called the Bank Term Funding Program, which allowed banks to use debt securities like long duration US Treasuries as collateral for cash loans for up to a year—giving banks access to liquidity without having to sell securities at a loss.7

By the end of the month, news of a possible banking crisis had largely faded. In our view, tier 1 capital ratios and loan-to-deposit ratios suggest the US banking is very well-capitalized, and we would note that nearly all large banks have the ability to meet withdrawal requests without selling illiquid assets or fixed income assets at losses.8 In fact, many large banks actually benefitted from deposit flows in the weeks following the failures, as clients pulled cash from several regional banks.9 We think the relative stability of the broad US stock market last month underscores the underlying strength of the banking system.

From an economic standpoint, banks outside of the largest 25 account for 40% of all loan activity, and small banks in particular are responsible for 67% of all commercial real estate lending.10 The economic impact—including the possibility of recession—could hinge on changes to loan activity in the coming months. In a statement, Federal Reserve Chairman Jerome Powell acknowledged this possibility: “Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects, and therefore too soon to tell how monetary policy should respond.“11

Perhaps in recognition of potentially adverse economic impact—as well as the possibility that higher rates could create more losses on bank balance sheets—the central bank limited its rate increase to only 25 basis points at the March 22 meeting. The Fed also released projections for the benchmark fed funds rate to settle around 5.1% by the end of the year, implying one more quarter-point increase this year.12 Prior to the bank failures, we believe the Fed planned to forecast a higher year end rate at this meeting, and it was at least considering an acceleration in the pace of rate increases to 50 basis points.

Data suggests the US economy is moving in the direction the Fed wants, though probably not at the desired pace. Households increased spending by a seasonally adjusted 0.2% month-over-month in February, following a 2% month-over-month increase in January. Looking a bit more closely,13 the Commerce Department reported that spending at stores, online, and in restaurants dropped by 0.4% in February, signaling that consumers were pulling back even before the banking issues emerged.14 Job openings also fell in February, to 9.9 million from January’s 10.6 million. While this is down from the peak of 12 million job openings reached in March 2022, it still marks a sizable gap from the 5.9 million unemployed Americans seeking work.15

The Fed’s preferred core personal consumption-expenditures (PCE) price index rose 4.6% year-over-year in February, down from 4.7% in January. The producer price index also fell 0.1% in February from the prior month, a meaningful signal that price pressures are abating.16 Finally, the Fed also reported that M2 money supply declined by $130 billion in February and -2.4% year-over-year. This marks the fastest rate of decline in M2 since the 1930s, but it’s also true that it follows the historic surge of money supply in the wake of the pandemic. Even still, the sharp decline in M2 should eventually have an anchoring effect on inflation. That may help firm the case for the Fed to conclude its tightening campaign in fairly short order, which could be an important silver lining for investors following the spate of bank failures that brought new risks to the fore in recent weeks.17   



2.Bloomberg: SPX Index and Nasdaq 1Q Performance

3.Bloomberg: USGG10YR Feb Mar Monthly Yield

4. rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023














As of March 31, 2023


March Madness: Part Two – Bracket Busters

March Madness: Part Two – Bracket Busters

Published on March, 21st, 2023

After a tumultuous week that saw a California-based crypto-focused bank (Silvergate Bank) wind down its operations1 as well as the seizure by U.S. regulators of two other banks (Silicon Valley Bank2 and Signature Bank3), the following week many college basketball fans gathered to watch their teams play in the NCAA tournament.  At the same time that many fans saw their brackets implode as a result of surprise losses, investors in the banking sector experienced their own shock and disbelief as bank shares generally continued to decline.4  Concerns of both depositors and investors appear to remain elevated despite actions by the Treasury that it had hoped would stabilize the situation.5

At present, we believe bank investors may be asking the following questions:

  • Will there be more bank runs necessitating government intervention or seizure?
  • Could Credit Suisse – or another “too big to fail” institution – be among them?6
  • Will banks somehow be forced to realize heretofore unrealized losses on bank balance sheets that will materially impair their shareholders equity?7
  • Might many bank depositors grow so concerned that they shift their deposits to the largest banks?8
  • Will the Federal Reserve continue to hike interest rates despite recent turmoil in the banking sector?9
  • Do the recent bank seizures mean that smaller banks are going to see much more stringent regulations that will crimp their margins and ability to lend?10
  • Is this episode going to cause a pullback in lending by smaller banks, slowing the U.S. economy enough to cause a recession?11

At this point we cannot know if there will be additional bank failures.  We are monitoring a number of items to help us assess the situation.  Each week, the Fed shares information on its balance sheet, including bank borrowings at the Fed’s discount window, as well as usage of the new Bank Term Funding

Program the Fed created on March 12 to help provide funds to any banks needing them.12  Once things calm down, we would not expect to see much activity here.  We are also monitoring changes in the spread between the overnight lending rate set by central banks and the three-month interbank lending rate; this spread changes from minute to minute and over the past week it has been quite elevated.13  We believe its current level prices in a significant amount of fear and risk aversion; if this spread were to fall considerably, we would take it as a sign that concerns have eased. 

Moreover, in our view, bank stock prices can be a signal in themselves.  George Soros coined the term “reflexivity” to indicate the strange concept which is the opposite of what we believe to be true most of the time – that corporate fundamentals drive the price of a security.14  With reflexivity, a security’s price can drive fundamentals15 – in this case, a rapidly falling bank stock price might induce fear in depositors, adding to their concerns and convincing them that withdrawing their money and placing it in another bank is the right course of action.  This can become a vicious cycle, we believe, as more withdrawals may lead to a lower stock price, and so on.  Additional policy and/or funding announcements from the Federal Reserve may also act to change investor sentiment regarding the possibility of further bank problems. 

Our team has been delving into these issues ever since the FDIC seized control of Silicon Valley Bank.16  While the situation is still developing, it appears that over the weekend of March 18th the Swiss government is encouraging UBS to take over all or parts of Credit Suisse (CS)17, which in our view may forestall further problems that might otherwise develop if CS was left to sink on its own.  It seems unlikely to us that CS would be allowed to fail, given that it is a global systemically important bank18 and we believe the Swiss central bank has the means and the will to save it.  If this transaction is agreed to, one significant ‘problem child’ of the last two weeks would be removed from the list of investor concerns, in our view.

We believe U.S. banking analysts over the past ten days have been laser focused on several metrics to assess the likelihood of additional problems arising in the banking system.  In our view these may include the average deposit size at a bank and whether it is above the FDIC’s $250,000 insured amount, and relatedly, the percentage of a bank’s deposits which exceed that amount, the “uninsured” deposits.19  With this information, analysts may seek to assess a given bank’s risk of having larger depositors potentially move their funds elsewhere due to concerns about being over the insured level. 

We believe analysts are also scrutinizing bank balance sheets to determine if their bond portfolios have experienced losses, and if so, how large those losses might be relative to shareholder equity.20  Current accounting rules permit banks to hold bonds that have unrealized losses without negatively impacting equity, as long as those bonds are designated as “held to maturity.”21  By focusing on this measure, analysts may hope to determine the risk that if a bank is forced to sell bonds in order to meet depositor withdrawals, that it might have to realize these losses, and what the impact upon the bank’s equity might be.22  If equity is wiped out by realized losses from selling bonds, a bank may become insolvent. We believe this was the situation that management of Silicon Valley Bank found themselves in when depositors rushed to withdraw huge amounts of deposits from the bank in a very short period.23

It’s difficult to know in the aggregate how bank depositors have been reacting to recent events.  Banks are not required to report deposit levels daily, so over the course of the last week it is impossible to know – unless a particular bank decides to make a public disclosure24 – whether that bank is seeing depositors take funds out, move funds in, or leave them be.  It seems likely to us that the largest banks have been seeing inflows, given that they are considered too big to fail.  In our view, the recent announcement by a group of the largest U.S. banks to shift $30 billion of their deposits to First Republic would seem to indicate that those banks may have experienced significant deposit inflows, and therefore were comfortable participating in efforts to help a peer recover from what may have been material deposit outflows.25 

We are concerned that smaller banks may see higher costs of funding, increased regulation, and potentially changes in how ratings agencies assess their level of credit risk.26  Collectively these changes could cause headwinds for the U.S. economy, since smaller banks have been more significant engines for loan growth than larger banks.27  As credit becomes more difficult to access at smaller banks, borrowers may seek loans from larger banks.  However, lending is a relationship business, and larger banks generally will not have the same relationships with these borrowers that their smaller bank lending officers did.  We believe this is likely to result, in the aggregate, in a decline in the extension of credit.28 Offsetting this pressure to some degree, a lot of loans made in the U.S. economy come from non-bank institutions, such as insurance companies, private equity firms, and other alternative asset management firms.29  In addition, we believe mortgage lending is less likely to be impacted by this particular issue, given the government’s involvement in purchasing conforming mortgages and packaging them into mortgage backed securities.30

Could a decline in credit extended by smaller banks tip the economy into recession?  Many investors have been concerned about the possibility of a recession since the middle of 2022 when yield curves began to invert.31 We believe the recent bank failures increase the odds of recession. One offset is that the Fed is now more likely to be less aggressive with future interest rate hikes, and in fact the futures market is telling us at this time that investors now expect the Fed to cut rates as soon as June32.  Some of the prior rate hiking cycles saw the Fed hike into a serious problem or crisis, and as a result the Fed paused and sometimes reversed, and this succession of events did not result in a recession for many years into the future.33 

Martin Zweig, the respected investor and market forecaster, coined the phrase “Don’t Fight the Fed” in 197034, explaining his view that Federal Reserve policy can drive the market’s direction.  If we are indeed approaching a point where the Fed will be cutting interest rates to offset a recession or period of slower growth, then we may also be approaching a point where investors might feel more comfortable about investing in the stock market.





4Bloomberg. S&P 500 Banks declined 11.2% over the 5 days ended March 17, 2023. See Figure 1.



7 The total amount of unrealized losses on bank balance sheets was $620 billion as of December 31, 2022.


9 As of March 17, Fed Funds futures markets are pricing in a 62% chance of an interest rate increase at the Fed’s next meeting on March 22, 2023. See Figure 2.



12 Federal Reserve Statistical Release H.4.1 showed that, as of March 15, 2023, there were $12 billion of BFTP loans and $153 billion of discount window loans on its balance sheet. There were also $143 billion of other credit extensions to banks in FDIC receivership.

13Bloomberg. The Forward Rate Agreement-Overnight Index Swap spread was 0.47% on March 17, up from 0.03% on March 8. Its five-year average is 0.22%. See Figure 4.

14“The Alchemy of Finance” by George Soros. pp. 2-3. “The Concept of Reflexivity.” Wiley. 1987.

15“The Alchemy of Finance” by George Soros. pp. 2-3. “The Concept of Reflexivity.” Wiley. 1987.














29 Nonbank financial intermediaries, broadly defined, fund nearly 60% of the credit to the U.S. economy.



32Bloomberg – see Figure 3 below

33Evercore ISI. Weekly Economic Report. March 12, 2023. See Figure 5.


Figure 1 

Source 4    

Figure 2

Source 9

Figure 3

Source 32

Figure 4

Source 13

Figure 5

Source 33

As of March 21, 2023


February 2023 | Equity Commentary

February 2023 | Equity Commentary

Published on March, 16th, 2023

The ‘economic good news is bad news’ trade was on in February, with the S&P 500 falling 2.5% for the month. The 10-year US Treasury bond yield rose from 3.5% to 3.9%, essentially reversing January’s move.1 During the month, we believe inflation readings appeared hotter than financial markets may have expected, and the economy showed few signs of weakening substantially.  This occurred in the backdrop of the Fed having slowed the pace of rate hikes from four consecutive 75bp hikes in June, July, September, and November, to 50bps in December and 25bps in early February.2 In testimony before the Senate Banking Committee on March 7, Chairman Jerome Powell said “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” noting that recent data appeared to mark a reversal in the prior trend of cooling inflation. Interest rates futures markets continue to bid up expectations for the benchmark fed funds rate in 2023. At the last Fed meeting, market expectations were for peak fed funds of 4.9% in May, falling thereafter to a year-end level of 4.3%. By March 6, investors were forecasting a peak rate of 5.5% in September, declining only modestly by year end to 5.4%.3

Inflation data released in February did not offer much encouragement to the Federal Reserve, in our opinion. The Fed’s preferred measure of inflation – the Personal Consumption Expenditures (PCE) price index – increased by 5.4% year-over-year in January, which was slightly worse than December’s 5.3% print.4 The Consumer Price Index (CPI) and the Producer Price Index (PPI) continued to show improvements year-over-year, but the pace of deceleration slowed – a point we believe is not lost on market watchers and the Fed. 

The Labor Department reported a 6.4% year-over-year CPI increase in January, which marked only a very modest improvement from December’s 6.5% rate of increase. More worrisome to us was the month-over-month change in CPI, which at 0.5% from December to January was a significant move higher than the previous month’s 0.1% increase. Core prices, which exclude energy and food, were up 5.6% year-over-year, again only a slight improvement from December’s 5.7% year-over-year increase.5 Much like January’s CPI report, the January’s PPI improved year-over-year compared to December, but the 0.7% month-over-month from December to January was a sharp reversal from December’s -0.2% decline from November.6

We believe the divergence between goods and services continues to be the key sticking point in today’s inflation story. Core goods prices have stabilized while shelter costs (a key component of services) rose at their fastest annual pace since 1982.7This inflationary pressure is a byproduct of continued strength in the labor market, coupled with consumers increasingly shifting their spending from goods to services. Consumers spent more in restaurants, bars, and hospitality in January, helping drive a 3% increase in retail sales from December to January – the biggest monthly jump in almost two years.8

Energy’s contribution to inflationary pressures also remains high on our watchlist, particularly as the war in Ukraine continues. In response to Western oil sanctions, Russia announced it would cut oil production by 5% in March.9 In our view, this move should not impact global oil prices very much, but it does appear to signal Russia’s willingness to potentially disrupt global energy markets.

Regarding the outlook for services inflation, the US labor market continues to look largely unresponsive to Fed rate hikes, in our opinion. Nonfarm unemployment jumped by 517,000 in January, which blew past consensus expectations for a roughly 200,000 increase10. Initial jobless claims – a proxy for layoffs – were also seen ticking slightly lower in the last week of February, which suggests to us, that employers continue to desperately cling to workers. First-time applications for unemployment benefits fell to 183,000, the lowest reported level since April 2022, and unemployment rate fell to 3.4%, a 53-year low.11 One bright spot for the inflation picture is that average hourly earnings rose 4.4% year-over-year in January, which marked the smallest increase since August 2021.12

Economic data in services and manufacturing remains mixed, in our view. In February, S&P Global’s index of services businesses rose to 52.1 pushing it back into expansion territory and marking the strongest reading in eight months. U.S. companies that participate in the surveys reported their first growth in output since last summer and indicated optimism about activity in the months ahead.13 

S&P Global’s February manufacturing index reading rose to 47.3 from 46. in January. While still contractionary, the improvement suggests that activity is contracting at a slower pace, and manufacturers indicated that softer demand has allowed them to work through the backlogs that remain a legacy of the pandemic ISM’s survey also showed contraction.14 Businesses said they were slowing output in anticipation of weak demand in the first half of 2023, but that expectations were in place for a growth pickup in the second half. A key data point, in our view, from the survey was that the index for input prices moved above 50 for the first time since September, a cautionary sign that price pressures could be creeping higher again.15


1Bloomberg. SPX 500 Index DES. USGG10YR GP Function

2United States Fed Funds Rate – 2023 Data – 1791-2022 Historical – 2024 Forecast

3Bloomberg: Implied Overnight Rate & Number of Hikes/Cuts 12/14/22 and 3/6/23

4Personal Income and Outlays, January 2023 _ U.S. Bureau of Economic Analysis (BEA).pdf


6Producer Price Index News Release summary – 2023 M01 Results.pdf


8U.S. retail sales roar back; manufacturing shows improvement _ Reuters.pdf

9Russia to cut oil output by 500,000 bpd in March _ Reuters.pdf




13Global economic growth accelerates to eight-month high in February _ S&P Global.pdf


15February 2023 Manufacturing ISM® Report On Business®.pdf

As of March 16, 2023


March Madness

March Madness

Published on March, 13th, 2023

A series of events last week culminated in the United States Treasury announcing over the weekend that it would take steps to stabilize the banking industry.  These actions included providing access to all depositor funds at two banks which were shut down by regulators, as well as a new funding vehicle to guarantee that all banks have access to liquid funds should the need arise in order to meet withdrawal requests by customers.  The pace at which these events have unfolded is concerning, but we believe these actions by the Treasury should stabilize the banking system and prevent further panic by bank customers.  However, there may be some additional issues which arise in the industry as the full implications of this episode become clearer in the coming days and weeks.

Last week, on March 8th, the holding company for Silvergate Bank announced that Silvergate would close down and liquidate its operations.  Silvergate was a California-based bank unknown to most Americans that went public in late 2019.1  The bank described itself as the leading provider of innovative financial infrastructure solutions and services to participants in the nascent and expanding digital currency industry.2  Silvergate also built and operated a 24 x 7 currency exchange where cryptocurrency traders could buy and sell digital currency instantaneously.3  As a result, a large proportion of the bank’s depositors were cryptocurrency traders.4

The downfall of Silvergate may have been catalyzed in part by the November 11 collapse and bankruptcy of the FTX cryptocurrency exchange, the details of which are still being analyzed and uncovered.  As a result of the FTX bankruptcy, cryptocurrency investors may have grown more cautious about the creditworthiness of the various entities operating in the crypto world.1 We believe that as Silvergate’s depositors began to withdraw more and more of their funds, this eventually began to put pressure on the bank’s balance sheet.  (This is referred to as a “run” on the bank.)

In a simple model of a bank’s balance sheet, the bank takes in deposits from customers and uses those deposits to make loans as well as to invest in safe fixed income securities, usually government bonds.   Typically, these bonds are divided into two categories, one of which is very short term and used for funding customer withdrawals, while the other can be thought of as longer term that might be held to maturity.5 

If more withdrawals are requested of the bank than can be funded by the short-term category, the bank must then start to sell bonds from the long-term category.  If those long-term bonds are priced at a loss because interest rates have increased, the bank must realize that loss by selling in order to provide funds back to the customers who are withdrawing their cash.  However, if these realized losses are large enough relative to the net worth of the bank, the bank may end up in trouble.5  On March 8th, this situation appears to have developed at Silvergate Bank.

The very next day (Thursday), Silicon Valley Bank, whose parent is bank holding company SVB Financial Group, also suffered a run by depositors, and its stock price fell by 60%.6  That bank’s shares never reopened for trading on Friday and it was seized by the FDIC.6 SVB was a somewhat unique bank in that its deposits were largely from start-up companies, many of which had not yet done an IPO.7  SVB was also far larger than Silvergate, with total assets at year end of $212 billion compared to Silvergate’s $11 billion.  According to company SEC filings, of SVB’s year-end deposits of $173 billion, just $74 billion were used to fund loans, while the remainder were largely invested in government bonds. 

Just as was the case with Silvergate, SVB’s depositors apparently began to worry about the health of the bank, and many rushed to withdraw their funds.  Ultimately SVB was in a situation where it began to realize losses on its bond portfolio which exceeded the bank’s equity,6 which seems to be why it was seized by the FDIC on Friday March 10.  Another bank said to have exposure to crytpocurrency, Signature Bank, was closed down on Sunday by New York state regulators.  Signature Bank had year-end total assets of $110 billion.

The unusual aspect as we see it to the seizures of SVB and Signature Bank is that both banks are apparently not facing problems with bad credit or delinquencies.  Rather, they seemingly faced issues of liquidity and access to capital to shore up their balance sheets in the short term.  We think that is what makes this episode so different, say, than the 2008 financial crisis where there were bad loans that ultimately destroyed the equity capital of many banks in the U.S.8  What we saw last week was not a credit problem. We believe that, in general, bank assets are creditworthy, and banks are well capitalized. Many rules promulgated since the 2008 financial crisis have required this, and the Fed conducts annual stress tests on the largest U.S. banks to ensure it.9 In our view, those tests were very tough in recent years, and all large U.S. banks passed them.

We believe that the bank seizures, as well as the winding down of Silvergate, can be at least in part tied to the Federal Reserve’s interest rate hikes which began in March 2022 as part of the Fed’s efforts to fight inflation, as well as the reversal of its quantitative easing program, called quantitative tightening.  In past rate hiking cycles, we have often seen that “something breaks” and the Fed has to stop. Examples that we think about include Long-Term Capital Management (1998) and Continental Illinois (1984).

On Sunday March 12, the United States Treasury announced that all depositors of SVB and Signature would be able to access all their funds on Monday. This includes all deposits, even those exceeding the FDIC insured limit of $250,000 per depositor. The Federal Reserve also announced a new Bank Term Funding Program that will lend against Treasury and agency securities at par for up to one year, providing another resource for banks to meet depositor requests for funds should the need arise, in addition to the discount window. For now, we believe these actions are likely to limit further contagion and fears about the health of the U.S. banking industry. That said, it is possible that other factors like rising deposit costs that result from this episode could continue to weigh on at least some banks going forward.












As of March 13, 2023


Jason Benowitz Featured on TD Ameritrade Network “PYPL, UHAL/B: Finding “Recession Resistant” Stocks”

Jason Benowitz Featured on TD Ameritrade Network “PYPL, UHAL/B: Finding “Recession Resistant” Stocks”

Published on March 3, 2023

“We expect recent deals with Apple (AAPL) and Amazon (AMZN) to add volume for PayPal (PYPL), says Jason Benowitz. He discusses finding “recession resistant” stocks. He goes over his stock picks which include PYPL, U-Haul (UHAL/B). He notes that UHAL/Bis the leader in its space and has one of the largest self-storage businesses in North America.”

Watch the Video Here

January 2023 | Equity Commentary

January 2023 | Equity Commentary

Published on February 15th, 2023

Market Overview

Stocks and bonds rallied to start the new year, as economic data and inflation continued to trend lower and paved the way for the Federal Reserve to scale down the size of fed funds rate increases. The US jobs market, however, continues to be an asterisk on expectations for further rate increases, as payrolls surprised to the upside in December. We believe too little slack in the labor market has been the proverbial thorn in Fed Chairman Jerome Powell’s side, which led him to reiterate after January’s meeting that inflation will not return to 2% until there is “better balance in the labor market.”1 Stocks declined following the jobs report, but still posted strong returns for the month with the S&P 500 rising 6.3% and the Nasdaq up +10.7%.2 The additional boost for tech stocks may have resulted from investors re-entering positions sold late last year for tax loss harvesting purposes. Bond prices also rose sharply in the month, with the yield on the 10-year US Treasury bond falling from 3.87% at the end of last year to 3.51% by the end of January.3

As we expected, the Federal Reserve raised its benchmark fed funds rate by 25 basis points at the January meeting, to a range of 4.5% – 4.75%.4 The week before the announcement, the Bureau of Economic Analysis reported that the Fed’s preferred inflation gauge – the personal-consumption expenditures (PCE) price index – increased by 5% year-over-year in December, a solid improvement from November’s 5.5% print and also the lightest inflation reading since September 2021. The Core PCE-price index, which measures inflation minus food and energy, rose 4.4%.5

In the Fed’s view, encouraging inflation trends are neutralized by strength in the labor market. In January, employers added 517,000 new jobs, essentially double what most economists had forecast. The four-week moving average of initial jobless claims—which is generally a useful leading indicator for economic weakness—fell to 189,000.6 For context, when the jobs market was considered strong in 2019, claims averaged about 220,000 each month. Job openings also rose to 11 million at the end of last year, which brought the ratio of unemployed workers to job openings back above 2:1.6

Chairman Powell holds the view that unemployment and inflation have an inverse relationship, which is the economic theory known as the Phillips Curve. While his ongoing hawkishness appears to be rooted in this theory, a bright spot for markets is that employment costs and private-sector wage growth have actually come down over the past few months, even as the labor market remains strong and the unemployment rate has fallen.7 For Q4, the Labor Department reported that employers spent 1% more on wages and benefits than they did in Q3, which was an improvement from the previous quarter’s 1.2% pace. On an annualized basis, wages and benefits grew by 4% in the fourth quarter, which is a marked improvement from the peak 5.8% pace set earlier in 2022. 4% wage growth is not compatible with the Fed’s 2% average inflation target, but it’s accurate to say that wage pressures overall have been getting better, not worse.8

The US economy grew by 2.9% (annualized) in the fourth quarter, according to an advanced estimate from the Bureau of Economic Analysis.9 While 2.9% is a relatively strong pace of growth, underlying drivers indicate the economy may be weaker than the headline number suggests. In manufacturing, the December PMI fell by 0.6% from November and remained in contractionary territory (48.4%). Industrial production also fell by 0.7% month-over-month in December, and manufacturing output declined by 1.3% with weakness reported across the sector.10

The US consumer also pulled back on spending in December. For the month, spending on services like rent, utilities, and dining out was flat, but when adjusted for inflation marked the weakest reading in 11 months. Goods spending as measured by retail sales also appears to be turning over, as consumers are confronting shorter runways with pandemic-era savings. According to data released by the Commerce Department, retail sales fell by -1.1% from November to December.11

Overseas, Europe’s economy appears to us to be performing better than most expected. We believe that one key reason for the resilience was the energy crisis that never came to fruition, thanks to a mild winter, energy-conservation efforts, and a shift in sourcing for natural gas. S&P Global’s composite purchasing managers index, which measures activity in services and manufacturing, showed Europe moving from contraction territory (49.3) in December to expansion (50.2) in January. Germany, Europe’s largest and most vital economy, showed strong signs of stabilizing, which prompted the German Economy Ministry to forecast 0.2% growth in 2023.12

China’s economy has seemingly benefited from the end of zero-Covid. In January, China’s nonmanufacturing PMI, which measures key services and manufacturing activity, crossed above 50 (signaling expansion) for the first time since last September – a drastic improvement from December’s 39.4 reading. Manufacturing activity rose above 50 for the first time since August, a marked improvement from December’s 47.0 reading. Consumers also showed strong signs of getting back out and spending, despite a surge of infections. Box-office revenues were the highest on record for a Lunar New Year holiday, and train travel surged back to 83% of 2019 levels.13

Tension between the US and China continues, with the latest episode of the spy balloon drawing ire from US officials. In our view, President Biden and President Xi appear to be intent on managing risk in the short-term, particularly as China focuses on an economic recovery in 2023. Incidents like this one strain bilateral relations, but should not escalate to the point of impacting markets or either country’s economic trajectory. As both countries harden their stance toward the other, trade continues to rise between the two: US imports from China increased by 6.3% year-over-year in 2022, while exports rose by 1.6% year-over-year. Despite tariffs and aired grievances, total trade between the two countries reached a record $690.6 billion in 2022.14



2Bloomberg: SPX Index, CCMP Index January Returns

3Bloomberg: USGG10YR Index Returns












As of January 31st, 2023

2023 Outlook | Quarterly Conference Call

2023 Outlook: The Recession That Everyone Saw Coming

Click Here to Watch

December 2022 | Fixed Income Commentary

December 2022 | Fixed Income Commentary

Published on January 27th, 2023

Market Overview

After government bond yields increased substantially during the first nine months of the year1 , fixed income markets experienced a reprieve in the fourth quarter as two-year and ten-year US treasury yields increased by a modest 15 bps and 4 bps 2, respectively. The Current Income Portfolio’s fourth quarter total return was 1.2% gross, and 0.8% net, for an overall decline of -7.7% gross, and -8.2% net, during the 2022 year.

At the start of the quarter, inflation readings came in higher and more broad-based than financial markets expected indicating to us that the Federal Reserve would likely need to take an even more restrictive monetary policy stance to fight inflation.3  However, as the quarter progressed, financial markets apparently welcomed a reduction in the monthly pace of increases in the Consumer Price Index in October and November that signaled inflationary pressures could be easing.3 Taken together with recent softening in some macroeconomic data, this suggested to us that the pace of the FOMC’s interest rate hikes could slow in the months to come. In fact, by the end of the fourth quarter, Fed Funds Futures markets were already pricing in a Federal Reserve “pivot” (a shift in monetary policy action) that reflected expectations for the Fed Funds Rate to peak at 5% in July of 2023, followed by roughly 50 bps of interest rate cuts in the second half of the year.4

Although financial markets appear to have priced in expectations for monetary policy 4 cuts to begin in the second half of 2023, the Federal Reserve has reiterated its plan to maintain a restrictive policy stance5throughout the entirety of 2023. In the Federal Reserve’s Summary of Economic Projections (SEP) released in December 2022, not only did the committee revise expectations for inflation in 2023 upward from their September 2022 SEP release (f), but Fed Chair Powell also stated that “it will take substantially more evidence to give confidence that inflation is on a sustained downward path”.5 Additionally, according to the December FOMC meeting minutes, not one member of the Federal Reserve expects to cut policy rates in 2023.6 Over the course of the year, we think this will get resolved in one of two ways. Either the market will push out the time to first rate cut to 2024; or the Fed will begin forecasting a cut in 2023. The key determinant as we see it is likely to be whether wage growth, which is a driver of services inflation, is stickier than expected by the market. Goods inflation has already improved, and shelter inflation is beginning to moderate as well. Presently we believe the Fed has an incentive to insist that policy will remain restrictive, because any plans to be dovish in the future might spark an easing of financial conditions, possibly imperiling its war on inflation.

Source: Bloomberg

At the start of the fourth quarter, Fed Funds Futures markets projected the policy rate to peak at roughly 4.5% in mid-2023. By the end of the quarter, the market projection had shifted to a peak rate of 5% at midyear, followed by 50bps of rate cuts by year end. This policy rate path projection contrasts with the Fed’s recent release of rate projections (in the “dot plot”) as FOMC members expect rates to stay higher for longer.

We believe the U.S. economy is likely to enter a recession this year that is accompanied by a possible decline in corporate earnings. While this all sounds gloomy, in our view there are several factors that suggest a “hard landing” scenario, i.e. a deep economic recession (sometimes associated with a financial crisis) is unlikely. At present, it appears the labor market is quite strong7, middle-income households still hold some excess savings accumulated over the pandemic period8, and corporate balance sheets and profitability are currently in a strong position9. In addition, we believe the U.S. banking system is well capitalized, as demonstrated by the 2022 Dodd-Frank Act Stress Tests,10 while excesses in the capital markets, such as highly valued but unprofitable technology stocks, Special Purpose Acquisition Corporations, and cryptocurrencies have largely been wrung out of the system, in our opinion.

Additionally, while we believe the Federal Reserve is likely to pivot and begin to cut the Fed Funds Rate by the end of the year, we are uncertain as to whether inflation may prove stickier than what may be expected, especially in the services sector. Still, if inflation is subsiding by year end, and the central bank is both shrinking its balance sheet and holding the Federal Funds rate above 5%, this combination is akin to further tightening and suggests to us that real rates would effectively be rising as inflation is decelerating. If the economy were to enter a recession, the Federal Reserve would then be prompted to lower the Fed Funds Rate, in our view. Overall, we believe that we will most likely see a pickup in financial market volatility as well as the potential for wider credit spreads during the first half of 2023, before inflation eases and credit spreads rally in the second half of the year. 

We view high quality corporate bond and preferred securities as particularly attractive in the current environment given our outlook for 2023.  Although investment grade corporate fundamentals may have just begun to show minor signs of deterioration, they appear to be in a stronger starting position than in past cycles heading into a potential recessionary environment.9 Profit margins, leverage, and interest coverage are all at some of the healthiest levels that they’ve attained in recent years.9 Moreover, given the significant portion of the preferred securities market that is issued by banks, insurance companies, and utilities, many preferred securities operate in a regulated environment which monitors their capital levels and capacity to pay dividends.10,11 We believe financial issuers can also benefit from higher interest rates through increases in net interest margin, providing another tailwind for many preferred securities in 2023.  Therefore, given our potential recessionary outlook, we consider our corporate bond and preferred securities selection able to withstand a moderate widening of credit spreads and pick up in financial market volatility due to their strong corporate fundamentals, solid balance sheets and regulated nature of their businesses. Our goal of reducing risk and enhancing income is unchanged, and we think high quality fixed income assets are uniquely positioned to deliver attractive risk-adjusted returns in 2023. 


1Bloomberg: USGG10YR Index 12/31/21 – 9/30/22

2Bloomberg: USGG10YR Index 9/30/22 – 12/30/22


4Bloomberg: MIPR, Market Implied Policy Rate screen





9Bloomberg: STRTN GO Fundamentals / EBITDA Margin, Total Leverage and Interest Coverage



As of December 31st, 2022

December 2022 | Equity Commentary

December 2022 | Equity Commentary

Published on January 12th, 2023

Market Overview

Strong equity market gains posted from the October lows through November were pared back in December. It appears most of December’s drawdown came after the Federal Reserve’s decision to raise the benchmark fed funds rate by 50 basis points. We believe the issue for financial markets was not the rate hike itself—which was widely expected—but rather the central bank’s new projection for the terminal fed funds rate in 2023. In September, the Federal Reserve was forecasting a peak fed funds rate of 4.6% by the end of 2023, but the December meeting shifted the projection even higher to 5.1%. Investors may have been hoping that encouraging inflation prints for October and November would soften the Fed’s stance.1 The following day, retail sales came in weaker than expected, which may have accentuated Fed-related weakness. The S&P 500 retreated by -5.8% for the month, and US Treasuries ended a challenging year with even more upward pressure on yields across the curve. Stocks did well for the quarter, however, with the S&P 500 gaining +7.5% for the three months ending December 31, 2022.2

 The Labor Department’s headline consumer-price index (CPI) measure of inflation rose by 7.1% year-over-year in November, a marked improvement from the 7.7% rate posted in October and a significant decline from June’s 9.1% peak.3 The Federal Reserve’s preferred measure of inflation, the PCE Core price index, also improved, slowing to a 4.7% year-over-year rate in November from 5.0% in October.4 The Federal Reserve responded in December with a 50-basis point rate increase, a welcomed downshift following four consecutive 75 basis point increases. The fed-funds rate now stands at a range between 4.25% and 4.5%, a 15-year high.1

Encouraging inflation readings have yet to align the Federal Reserve with the market, in our opinion, however. Market participants appear to be anticipating a larger decline in inflation in 2023 – and thus a lower expected terminal fed funds rate – than current Federal Reserve projections. The expected inflation gap can be meaningful – according to Barclays, the bond markets are projecting the consumer price index will fall to 2.6% by the end of 2023,1 which would arguably put the Federal Reserve’s preferred PCE price index very close to the 2% target. Meanwhile, the Federal Reserve actually raised its 2023 core PCE inflation forecast from 3.1% to 3.5% at its most recent December meeting.1 Market consternation in late December appeared to be tied to this increasingly divergent outlook on inflation and interest rates.

As we have mentioned in previous months’ commentaries, the Federal Reserve has substantially shifted its focus to services inflation, excluding shelter (housing costs). Chairman Powell’s biggest concern, in our opinion, is the effect the tight labor market has on wages, which in many cases influences companies to raise prices to make up for higher costs. Ongoing tightness in the labor market could cause inflation to become entrenched, which is arguably the Federal Reserve’s biggest fear. In comments following the 50-basis point rate increase, Chairman Powell said, “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers.” 1Wages and salaries grew 0.5% from October to November5, and prices for services rose over that period while prices for goods declined. We believe the Federal Reserve is not likely to waver from its hawkish stance as long as labor market strength persists, even if goods inflation declines sharply in 2023 as most expect.

The ‘good news’ here, in our opinion, is that aggressive monetary tightening to date has already slowed growth and overall inflation, and because rate hikes work on a lag, is likely to produce more economic weakness in the first half of 2023. Key leading economic indicators such as the Conference Board Leading Economic Indicator index and the OECD leading indicator appear to be at levels that have historically signaled a recession is in the offing. The inverted Treasury yield curve corroborates this view. Purchasing Managers’ Indexes are also declining towards contractionary territory,6 though are not there quite yet.

Housing is another key component of inflation, making up about 1/6th of the Fed’s preferred PCE price index.7 Existing home sales have fallen 32% over the past 10 months, and home prices have also come down from peak levels.7 In the rental markets, the supply of new apartments has hit a 40-year high, and more than 500,000 new apartment units are expected to hit the market by the end of 2023 – the highest total since 1986.7 Rents have fallen from their peaks in many major cities.7

In our view, the effect of slowing economic growth on employment has to date been modest, but not zero. Continuing unemployment claims bottomed near 1.3 million in May 2022, increasing to ~1.7 million by the end of the year, and job openings have come down from a March peak of 12 million to 10.5 million at the end of November.8 These are steps in the right direction, but further declines in job openings are likely needed in the new year for the Federal Reserve to shift its thinking.

Overseas, China made official the end to restrictive “zero Covid” policies, with the state now scrapping rules for mass testing, ending mandatory hospitalization for people who test positive, and reconfiguring how lockdowns are imposed, among other changes.9 We believe these changes are not likely to result in an immediate economic rebound, however, as the loosening of rules comes in the dead of winter when cases and hospitalizations are likely to rise the most. China appears to lack natural immunity from previous infection and also does not have access to highly effective vaccines, which means that even if shutdowns are no longer occurring, de-facto self-imposed lockdowns seem likely to increase as citizens hunker down to avoid infection. Our view is that after a weak first quarter related to the spike in infections, economic activity in China may rebound in the second quarter and more so in the second half, perhaps helped by fiscal stimulus from the Chinese government.  If so, this will likely exert a positive influence on commodity prices and growth in other economies as it occurs.



2 Bloomberg Terminal: SPX Index Go TRA








As of December 31st, 2022

November 2022 | Equity Commentary

November 2022 | Equity Commentary

Published on December 13th, 2022

Market Overview

U.S. stocks and bonds performed well in November. The S&P 500 finished 5.6% higher for the month and the 10-year U.S. Treasury bond yield retreated by 44 basis points to end the month at 3.6%.1 Positive performance was driven early in the month by what appears to be encouraging inflation data. The Labor Department reported that the Consumer Price Index (CPI) rose 7.7% in October, a meaningful decline from June’s 9.1% report (which may mark the peak) and the 8.2% reading in September. Core CPI rose 6.3% year-over-year in October which also marked an improvement from September’s 6.6% reading2. On the day of the inflation data release, the S&P 500 jumped +5.6% and the tech-heavy Nasdaq posted a sharp +7.4% rally.3 There are many factors that ultimately drive stock prices, but recent price action suggests the current market continues to be very sensitive to how inflation data may influence Federal Reserve policy. Softer inflation readings suggest the Federal Reserve can slow its pace of monetary tightening, which is a likely tailwind for asset prices.

During November, speeches by Federal Reserve officials and eventually Federal Reserve Chairman Jerome Powell, in our view, appeared to indicate the Federal Reserve may be ready to reduce the magnitude of its rate hikes to 50 basis point increases. In a speech at the Brookings Institute, Powell said that “the time for moderating the pace of rate increases may come as soon as the December meeting,” but also that “wage growth remains well above levels that would be consistent with 2% inflation.” 4Powell also acknowledged that rate increases take time to work their way through the economy, an indication of the Fed’s sensitivity to potentially over-tightening in this cycle. Though the Federal Reserve may downshift in terms of the size of rate increases, we believe the central bank has also tried to stress that the terminal fed funds rate may wind up higher than investors are currently anticipating.

Our perspective is that the labor market is a key reason the Federal Reserve continues to push the “long road ahead” narrative for monetary tightening. The U.S. economy added 261,000 jobs in October, and average hourly earnings rose 4.7% from October 2021. There were also 10.3 million job openings in the US as of the end of the month. A closer look at this labor market data offers some silver linings for the Federal Reserve, however. Though job openings remain too high, they did edge down from the previous month. Ditto for hourly earnings growth in October, which was still well outside of the Federal Reserve’s comfort zone but also marked an improvement from September’s 5.0% year-over-year growth rate.5

We believe the strong labor market has been helping US consumers navigate higher prices. Consumer spending rose 0.6% in September from August, and retail sales rose a seasonally adjusted 1.3% in October compared to September. These figures are not adjusted for inflation, so higher prices can result in higher levels of spending. But it is worth noting that consumers increased spending in non-essential categories, like outings at restaurants, home furnishings, and clothing.6 Anecdotally, the average Thanksgiving week airfare was up 46% year-over-year, but it did not stop Americans from making trips. Overall air travel still went up. 7

Wages are rising but have not kept up with inflation, and as a result Americans’ savings stockpile is starting to shrink – according to government data, somewhere between $1.2 and $1.8 trillion savings remain, which is a notable retreat from the $6+ trillion level reached in the months following the pandemic (when the first stimulus checks started to arrive). The runway for remaining savings may be as little as nine months, which could impact consumer spending particularly if inflation remains elevated. Worth noting is that the Federal Reserve Bank of New York said credit-card balances have risen by 15% year-over-year in Q3 2022, the fastest pace of increase in 20+ years. Consumers have been holding up remarkably well, but it remains to be seen how long the strength can keep up.8

Q3 2022 earnings season has wrapped up, and the latest estimates show earnings-per-share growth of 4.3% on 11.0% higher revenues. These results were largely seen as disappointing by financial markets particularly compared to previous periods, but they were not altogether surprising. Earnings estimates have been coming down all year, and Q4 estimates have already declined by 5.3% since September 30. 9Lower earnings estimates should not be viewed as a major negative, however. Falling expectations often mean a lower bar that corporations need to clear to deliver a positive surprise.

Overseas, China’s economic and socio-political woes joined the war in Ukraine as the biggest stories impacting the global economy. China’s years-long “zero Covid” strategy has reduced death and infection rates, but has also stifled economic growth and, most recently, contributed to citizen unrest and protests across major cities. On the economic front, November activity in China’s manufacturing sector measured by the purchasing managers’ index fell to 48 from 49.2 in October, marking two consecutive months of contraction. Another index that measures activity in the services and construction sector in China also fell month-over-month in November, to a notably weak 46.7.10

Part of the justification for communist rule in China is supposed to be steady economic growth and plentiful opportunity for employment, both of which have been severely compromised by the zero Covid strategy. China’s youth unemployment rate reached 17.9% in November,11 and a sputtering economy beset by strict lockdowns has diminished quality of life. The very rare show of defiance by protestors sent a strong message, however, with the state now scrapping rules for mass testing, ending mandatory hospitalization for people who test positive, and reconfiguring how lockdowns are imposed, among other changes. China is now belatedly shifting some of its focus to vaccinating a larger percentage of the population, particularly among the elderly, who currently have low vaccination rates. Only about 40% of those over 80 have received a two-shot vaccine plus a booster.12 China’s pivot comes as winter months approach, so there is good reason to be cautious about the short-term impact of infection spread, even as reopening is likely to support the economy over the medium term.


1 – Bloomberg: SPX Index; CT10 Govt functions










11 –


As of November 30th, 2022

October 2022 | Equity Commentary

October 2022 | Equity Commentary

Published on November 8th, 2022

Market Overview

The stage was set for an equity rally in October, in our view, given that negative sentiment and oversold conditions had both moved to extremes. The S&P 500 index rebounded a stout 8.1% for the month, and the Dow Jones Industrial Average notably posted its best month (+13.95%) since 1976.1 Equity markets may also have experienced an early benefit from seasonal forces, in which stocks have historically performed relatively well in the November to January timeframe – especially when there is a US midterm election. In the 18 midterm elections that have taken place since 1950, stocks have risen in the 12 months following the election 100% of the time, with an average 12-month forward return of +18.6%.2 In the fixed income markets, the 10-year US Treasury bond finally ended a 12-week streak of negative price returns, with yields falling 0.20% to finish the month at 4.02%.3

As financial markets expected, the Federal Reserve raised the benchmark fed-funds rate by 0.75 percentage points at the November 2 FOMC meeting. Chairman Powell reiterated that the Federal Reserve would rather go too far in hiking rates than not go far enough, as the central bank would more readily accept an economic recession versus entrenched inflation.4 Powell added that if the Federal Reserve had released new federal funds rate projections, they would have likely been higher given ongoing strength in the labor markets and another elevated inflation print in September.

In Chairman Powell’s press conference following the Federal Reserve’s announcement, the message was clear to financial markets that while the size of fed-funds rate increases may shrink at future meetings, the terminal rate – which is the end target for the Federal Reserve’s interest rate – would likely need to move higher. In Powell’s words, “the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.”5In other words, investors should not see a 50-basis point increase in December or smaller rate hikes in 2023 as a sign the Federal Reserve’s monetary tightening efforts are nearing an end. The Federal Reserve may go slower with rates, but they also may go longer and, ultimately, higher.

In our view, the macroeconomic picture influencing the Federal Reserve’s decision-making continues to be stubborn (US labor market) and sticky (inflation). The Labor Department reported that demand for workers continues to far outstrip the number of unemployed Americans seeking work. Total job openings unexpectedly climbed from 10.3 million in August to 10.7 million in September, which is slightly more than double the number of unemployed Americans seeking work (5.8 million). The September uptick may ultimately just be an anomaly, however, as the number of job openings has been in steady decline since its March 2022 peak of 11.9 million.6

On the plus side, we believe wages have been moving more favorably for the Federal Reserve, with average hourly earnings increasing by 4.7% year-over-year in October, a slightly slower pace than September’s 5%, and August’s 5.2%. The Atlanta Fed’s wage growth tracker, which measures the “nominal wage growth of individuals,” also fell in September from August – an early sign that wage pressures may have peaked.7 Additional data helpful to the Fed’s goals was the slight uptick in unemployment reported in early November, to 3.7% from the prior 3.5%.8 

US GDP grew at an annual rate of 2.6% in Q3, according to the Commerce Department. Better-than-expected GDP growth runs counter to the Federal Reserve’s goal of cooling the economy, but a closer look at GDP’s components shows that overall demand in the economy is indeed falling. Final sales to private domestic purchasers –which measures underlying demand in the economy – moved up by just 0.1% from Q2 to Q3, which while positive indicates a significant downshift in activity. Final sales to private domestic purchasers had moved 2.1% higher in Q1 and 0.5% higher in Q2. A major factor in GDP’s strong Q3 print was a 2.8% increase in net external trade, a reversal from earlier in the year when imports detracted from GDP as companies rushed to restock inventories. Consumer spending edged higher in the quarter.9

Services and Manufacturing activity in the US both slowed from September to October but remain in expansion mode. The October PMI for Manufacturing was 50.2 percent, which was 70 basis points lower than the September reading. New orders eased over the summer months and companies are largely preparing for lower demand in the future, according to the survey. The ISM report showed that supplier deliveries were moving faster, raw materials prices had declined, and supply chain bottlenecks were all but gone, all of which point in a favorable direction with respect to inflationary trends. On the services side, the PMI registered at 54.4 percent, which remains firmly in expansionary territory but slowed considerably from September’s 56.7 percent reading.10

Finally, the US housing market continues to show material signs of weakness as the average 30-year fixed mortgage rate now hovers around 7%. Pending home sales declined 10.2% in September from August, pulling sales back to levels seen at the outset of the pandemic. With the exception of May, pending home sales have fallen every month in 2022, a sign that rising interest rates are denting demand and also that pandemic-driven migration trends are fading. Home prices are also showing signs of plateauing, with the S&P CoreLogic Case-Shiller National Home Price Index falling 1.1% from July to August, the biggest monthly decline since December 2011. With shelter making up approximately one-third of the Consumer Price Index (CPI) measure of inflation, easing home price pressures register as a good sign for the data- dependent Federal Reserve.11 













As of October 31st, 2022

U.S. banks’ key performance metric set to turn around in second half

Jason Benowitz Featured in Reuters “U.S. banks’ key performance metric set to turn around in second half”

Published on September 14, 2022

“Banks were among the worst-performing sectors in the second-quarter earnings season as revenue growth was meager and profit decline was significant,” said Jason Benowitz, senior portfolio manager at Roosevelt Investments. “We expect some modest improvement from this low level in the third quarter.”

Read the Full Article Here

PayPal shares jump on Elliott’s $2 bln stake, annual profit guidance raise

Jason Benowitz Featured in Reuters “PayPal shares jump on Elliott’s $2 bln stake, annual profit guidance raise”

Published on August 2, 2022

“Considering the stock’s meaningful underperformance over the last nine months, this may be enough to satisfy investors, who have lost some measure of faith in management credibility after so many downward revisions,” said Jason Benowitz, senior portfolio manager at Roosevelt Investments.

“PayPal let an activist investor inside the tent with an information sharing agreement. We expect the company to materially refresh its top management layer and make tough choices to improve profit margins,” said Benowitz.

Read the Full Article Here

Analysis: Amazon has a Prime edge over Walmart: richer customers

Jason Benowitz Featured in Reuters “Analysis: Amazon has a Prime edge over Walmart: richer customers”

Published on July 29, 2022

“Amazon delivers a significant amount of its total gross merchandise volume via third-party sellers,” said Jason Benowitz, senior portfolio manager at The Roosevelt Investment Group. “In this business, Amazon collects fees for third-party seller services that we believe are less dependent on the nature of the items sold,” Benowitz said. This also insulates Amazon from changes in consumer spending patterns and may have had a lesser impact on profitability compared to Walmart or other traditional retailers, he added. Read the Full Article Here

Nasdaq Win Streak Is Fueled by Tech Losers Turning Into Winners

Jason Benowitz Featured in Bloomberg “Nasdaq Win Streak Is Fueled by Tech Losers Turning Into Winners”

Published on June 8, 2022

Jason Benowitz, a senior portfolio manager at Roosevelt Investments, said the prospect of more tightening from the Fed brings too many risks. “We are waiting for clearer signs that we are closer to a bottom and we’re not there yet,” he said. Read the Full Article Here

Best Buy earnings expected to fan inflation gloom gripping America’s retailers

Jason Benowitz Featured in Reuters “Best Buy earnings expected to fan inflation gloom gripping America’s retailers “

Published on  May 24, 2022

“Inflationary pressures are weighing on discretionary purchases, particularly among low-income consumers. There was also a material shift in consumption from goods to services and demand for large ticket items appear to have suffered the most from this shift,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group. “We believe these trends are likely to weigh on Best Buy’s results and outlook when it reports,” he added. “We believe investors may have gotten ahead of the company and Wall Street analysts by pricing in a downward revision to earnings expectations ahead of the quarterly report,” Benowitz said. Read the Full Article Here

Best Buy sees bigger drop in annual sales on inflation hit

Jason Benowitz Featured in Reuters “Best Buy sees bigger drop in annual sales on inflation hit”

Published on  May 24, 2022

“We believe investors had anticipated the earnings miss and guidance reduction to a large degree following reports of similar struggles at other retailers,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.

Read the Full Article Here

Tech Goes From Haven to Hazard as Investors Fear Recession

Jason Benowitz Featured in Bloomberg “Tech Goes From Haven to Hazard as Investors Fear Recession”

Published on  April 7, 2022

“A recession doesn’t look imminent, but the recipe is there,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group. “There are lots of reasons to be concerned and to think that maybe the rally we saw over the last two weeks wasn’t the start of a new market regime and instead more of an oversold bounce.”     Read the Full Article Here

Megacap Tech Stocks Still Have Lots of Fans After Historic Run

Published on Jan. 5, 2021

Jason Benowitz Featured in Bloomberg “Megacap Tech Stocks Still Have Lots of Fans After Historic Run”

“These companies have profits and cash flows and solid balance sheets,” said Jason Benowitz, senior portfolio manager with Roosevelt Investment Group. “High valuation by itself is not a sufficient thesis to be negative on a stock.”

The big risk, according to Benowitz, is if interest rates rise even more than is currently forecast. Indeed, the Nasdaq 100 fell 1.4% Tuesday as yields on the 10-year U.S. Treasuries jumped 16 basis points in just two days, serving a reminder to technology investors of the need to guard against unwelcome surprises. Higher rates reduce the present value of future earnings, weighing especially on shares of highly valued, fast-growing companies.

Read the Full Article Here

Walmart veteran Biggs to step down as CFO next year

Published on Dec. 1, 2021

Jason Benowitz Featured in Reuters “Walmart veteran Biggs to step down as CFO next year”

“Bret Biggs was a candidate to ultimately succeed Doug McMillon as CEO, given his long tenure at the company and broad experience across business units and functions outside of finance,” “However, we expect McMillon to serve many more years at the helm,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.

Read the Full Article Here

Here Are The Winners of Metaverse Buzz

Published on Nov. 15, 2021

Jason Benowitz Featured in Yahoo “Here Are The Winners of Metaverse Buzz”

“Whatever the future looks like, it’s going to require accelerated computing,” “We keep thinking of new and better ways to utilize data and we wind up with tremendous growth in data transmission, which drives that cohort of companies whether or not the metaverse comes to reality.” said Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group LLC in New York.

Read the Full Article Here

Musk sells nearly $7 bln worth of Tesla shares this week

Published on Nov. 15, 2021

Jason Benowitz Featured in Reuters “Musk sells nearly $7 bln worth of Tesla shares this week”

“We expect the share sales will continue, as Musk holds millions of options worth billions of dollars that would otherwise expire worthless, and he has also prearranged share sales under 10b5-1 plans,” said Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group LLC in New York.

Read the Full Article Here

Micron Earnings to Shed Light on Rare Weak Spot in Chip Stocks

Published on Nov. 4, 2021

Jason Benowitz Featured in Bloomberg “Micron Earnings to Shed Light on Rare Weak Spot in Chip Stocks”

While repurchases are likely to rise as economic growth continues, corporations may opt to allocate more cash to capital expenditures like technology and factories, according to Jason Benowitz, a senior portfolio manager at Roosevelt Investment Group. He’s not worried about the prospect of reduced buybacks weighing on the broader market. The Philadelphia semiconductor index has gained 23%, beating the S&P 500 Index and the Nasdaq 100 Stock Index. Makers of equipment used in the production of semiconductors have seen the biggest gains, led by Amkor Technology Inc. and ASML Holding. Micron shares are little changed on the year, while Western Digital has gained about 7%. Micron traded 0.9% lower in morning trading in New York.

“The outlook for global growth remains fairly strong for the second half of this year and 2022 once the delta variant subsides,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group. “Chip stock action reflects that.” Micron is projected to post revenue of $8.2 billion in its fiscal fourth quarter, an increase of 36% from the same period a year ago, according to the average of analyst estimates compiled by Bloomberg. Earnings excluding some items are expected to be $2.34 per share, more than twice what it was in the fourth quarter of 2020.

Read the Full Article Here

The Three Pillars of an Exit Plan – A Post-Pandemic Tune-Up

The Three Pillars of an Exit Plan – A Post-Pandemic Tune-Up

Published on Aug. 25, 2021

Investors, businesses, and consumers are focused on the future, and that’s great news.

Over the past few months, I have been talking to family, friends, colleagues, and clients in funeral service about lessons they have learned in the past year. I’m curious how folks think the future will look different. Interestingly, just about everyone gives a different answer about the future of work, life, and daily interactions. To me, the variety of responses is the clearest indication that the uncertainties of the past year have given way to uncertainties about the future.

To me, there is no better way to counter uncertainty than by making a thoughtful, detailed, and ultimately written plan. For many funeral service and cemetery professionals, this may mean taking a look at your business, its value, and your personal financial goals to ensure you have a clear vision for what you want the future to look like. In other words, now is the time to give your financial plan and your exit plan a post-pandemic tune up. I’ll focus on what you need to know for your exit plan here.

The Three Pillars of an Exit Plan

The three pillars of an exit plan are really three sets of questions that funeral service and cemetery business owners need to ask themselves.

Question 1: In order to leave or sell your business, how much would you need to receive in equity and/or after-tax proceeds?

Within the context of the pandemic and the past year, a key data point for all business owners is figuring out how much your business valuation changed. Did the pandemic cause it to increase or decrease? Do you think pandemic-driven forces – like changes to real estate prices, the jobs market, technology’s effect on how businesses offer services, and the changing wants and needs of client families  – bode well for the future of your business or work against it?

Answering these questions will not only give business owners a sense of what their business is worth today, it can also begin to address key questions about how the business’s valuation could change in the years ahead.

Another critical issue to think about here is what could happen to the value of your business if tax rates move higher. While we are not tax experts and we urge you to speak to your tax advisor about these issues, here is a hypothetical example to consider:

  • Scenario 1: Business owner sells his business in 2021 for $1,500,000. Using 20% federal capital gains rates, the owner receives $1,200,000 net of taxes.
  • Scenario 2: Business owner sells his business in 2023 for $1,500,000. By then, capital gains rates have increased to match ordinary income rates (39.6%) for those who earn more than $1,000,000. In this scenario, the owner receives $906,000 net of taxes.

The $300,000 difference between the two scenarios is not a small sum, which is precisely why these types of issues should be front-and-center in exit planning today.  

Question #2: When do you want to leave or sell your business?

The decision whether to sell now versus later can be dictated by tax expectations, as demonstrated above. But owners also need to consider the conditions throughout the profession and personal circumstances.

In the funeral service and cemetery profession, an owner may want to strongly consider selling during a period of heightened consolidation, attractively-priced deals, and low cost of capital (for example). The macroeconomic environment also plays a role – if the economy is in growth mode and expanding, there may be more years left in the cycle to accumulate additional value.

On the personal side, many owners need to weigh factors like lifestyle needs, desire to retire versus to work, family life, and/or desire to pursue philanthropic pursuits. At the end of the day, what the business owner wants for themselves personally needs to play a decisive role in how an exit plan is shaped.

Question #3: Who are the possible successors or acquirers of the business?

In all likelihood, the pandemic revealed new information about prospective successors or buyers for the business. Maybe the key employees you had in mind to take over the business struggled to meet the challenges posed by the pandemic. On the flip side, maybe you were surprised by how a family member or a third party stepped up over the past year, shifting your thinking completely about who is best suited to take over the business.

At the end of the day, finding and training a successor is almost certainly a multiyear process, requiring a lot of attention and energy. Owners should consider whether the pandemic made it more – or less – clear who is qualified to lead the business into the future.  

The last point to make is that exit planning is a dynamic, methodical, ongoing process – it is not a single event! Owners should not expect to make an exit plan once and never revisit it. Over time, financial situations change, timelines change, personal needs change, taxes change, and the economics of funeral service changes. The pandemic, of course, was a catalyst for change – which to me means owners and investors need to respond by tuning up your financial and exit plan now.

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Source: Published in Memento Mori magazine

Nicki Price Adams is the Face of Wealth Management in American Funeral Director

Published on Jul. 16 2021

July 2021: Nicki Price Adams is the Face of Wealth Management in American Funeral Director

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Walmart’s Flipkart raises fresh funds for $38 billion valuation as IPO looms

Published on Jul. 12, 2021

Jason Benowitz Featured in Reuters “Walmart’s Flipkart raises fresh funds for $38 billion valuation as IPO looms”

“It is a triumph for Walmart as investors were initially skeptical of the U.S. retailer’s tie-up with Flipkart,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group. He added the success of Flipkart bolsters India as a destination for foreign investment. Read the Full Article Here

Corporate Buybacks Gain Steam With Banks Poised to Boost Buying

Published on Jul. 6, 2021

Jason Benowitz Featured in Bloomberg “Corporate Buybacks Gain Steam With Banks Poised to Boost Buying”

While repurchases are likely to rise as economic growth continues, corporations may opt to allocate more cash to capital expenditures like technology and factories, according to Jason Benowitz, a senior portfolio manager at Roosevelt Investment Group. He’s not worried about the prospect of reduced buybacks weighing on the broader market.

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