Week of April 15, 2024

Dec Mullarkey, CFA , Managing Director, Investment Strategy and Asset Allocation

Many of us spend our days obsessing about what in other professions would be rounding errors. Just ask anyone who covers inflation. Over the last several weeks the third decimal point became routine disclosure.? So, it is refreshing when the U.S. Federal Reserve’s Beige Book comes along – with no numbers, just stories.

Eight times a year, the 12 Fed districts document their conversations with local bankers and business leaders, and then summarize the pulses from the local economy. Fed Chair Jerome Powell has opined on the value he and his colleagues get from knowing the collage of anecdotes behind the numbers.

The big takeaway from the current Beige Book installment is that economic activity is expanding slightly while wages moderate. Meanwhile consumer spending is relatively subdued and discretionary spending is weak. Nine districts reported “very slow to modest” increases in employment. And multiple districts reported that wage growth had returned to its historical average.

The forward view on inflation is that it will “hold steady at a slow pace.” The overall tone of the report appears to be measured caution around an economy that is reasonably firm but not reaccelerating.

Sources: Bloomberg, Financial Times, 2024.

?

Linda Kong Ting, CFA , Senior Director and Credit Analyst, Asset Management

This week, we finally saw fevers break in a variety of assets, with cryptocurrencies, the S&P 500 Index and oil coming off recent highs. However, both gold and 10-year yields remained stubbornly elevated. Big banks posted generally healthy numbers but saw mixed market reception as earnings were buoyed by volatility-driven trading profits but tempered by higher costs of deposits that ate into their net interest income. Reserves related to commercial real estate, especially beleaguered office buildings, notably increased as well, even though credit was not too bad in the aggregate.

In addition to the banks, we also saw a leading logistics facilities provider announce that demand is starting to slow in this previously bulletproof asset class. Rating agencies also added negative outlooks to a handful of business development companies (BDCs) where non-accruals have notably spiked into the mid single digits. We think the proliferation of these late-cycle indicators warrant more caution in the coming months, particularly for names that did not extend their maturity profiles during the boom times for bond issuance in the first quarter of 2024.

Source: Bloomberg, 2024.

The information may include statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. All opinions and commentary are subject to change without notice. SLC Management is not affiliated with, nor endorsing, any third parties mentioned within this article.

Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not?constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here. It is not possible to invest directly in an index.

SLC-20240418-3523706

#slcmanagement #fromthedesk #markets