RECESSION ANGST VS. RECESSION REALITIES
Global growth have been at the center of investor worries, but in some geographies, this is currently more a function of anticipation than hard data. Looking into the fourth quarter of 2019, we would break the world into two groups. Europe and some major emerging markets are seeing weak growth that feels like recession, while the U.S. and other major countries are more at risk of confidence shocks that could overwhelm reasonably strong fundamentals. With our continued overall expectation of a global soft landing, we provide details on our investment views.
We see potential for a global soft landing that supports a range of risky assets, but the picture is mixed: Although slow-but-positive growth should prevail in the U.S., other regions and countries face more risk. In such an environment, we see a number of key themes.
Credit markets still show potential. Valuations are less compelling than at the start of 2019, but stable growth and dovish central banks create a continued tightening bias, providing scope for performance potential for credit with continued dispersion.
Relative value in U.S. credit. After favoring increased exposure to European and emerging market credit over the past 18 months, we now believe value is centered in U.S. credit markets—due both to the growth outlook and valuations after European credit gains.
Floating-rate sector opportunity. Investors have been shunning bank loans, floating-rate corporate investment grade bonds and certain structured product investments. The now relatively attractive credit risk premiums, which coupled with longer-duration instruments, can create attractive portfolios.
Link between U.S. and global rates. With low growth and investor focus on currency-hedged yields, U.S. intermediate and long rates continue to be heavily influenced by global rates, particularly in Europe and Japan. Even if global rates are stable, they hardly represent value given continued purchases for portfolio diversification and hedging benefits.
Market focus on politics, policy. Brexit will likely be a source of volatility, while the Fed could provide more clarity on how it balances U.S. economic trends and easing pressure of other central banks. The fourth quarter could introduce the 2020 U.S. election as a risk factor for markets.
*Views expressed herein are generally those of the Neuberger Berman Fixed Income Investment Strategy Committee and do not reflect the views of the firm as a whole. Neuberger Berman advisors and portfolio managers may make recommendations or take positions contrary to the views expressed. Nothing herein constitutes a prediction or projection of future events or future market behavior. Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. See additional disclosures at the end of this material, which are an important part of this presentation. Currency views are based on spot rates, including carry.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Diversification does not guarantee profit or protect against loss in declining markets. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
The views expressed herein are those of the Neuberger Berman Fixed Income Investment Strategy Committee. Their views do not constitute a prediction or projection of future events or future market behavior. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/ disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
©2019 Neuberger Berman Group LLC. All rights reserved.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.