ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Artificial Intelligence
      • Beyond Basic Beta
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Direct Indexing
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Investing
      • ETF Education
      • ETF Strategist
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Institutional Income Strategies
      • Leveraged & Inverse
      • Managed Futures
      • Market Insights
      • Modern Alpha
      • Multifactor
      • Responsible Investing
      • Retirement Income
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Commodities
        • Gold/Silver/Critical Minerals
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Strategist Channel
  2. The Fed is Probably Done Hiking — What’s Next?
ETF Strategist Channel
Share

The Fed is Probably Done Hiking -- What's Next?

Sage Advisory   Aug 15, 2023
2023-08-15

Economic readings continue to point to a “soft landing” through the next few months, characterized by low and falling inflation and a resilient labor market. Consequently, the Fed raised interest rates for what is probably the last time during the current cycle. The concern for markets this week shifted to the sustainability of continued fiscal spending in a world where the unemployment rate remains below trend and the economy is not clearly in a recession. Coupled with the policy shift from the Bank of Japan, which raised its upper bound for the 10Y JGB yield to 1.00%, the expectations for higher risk premium in longer maturity bonds could spill over to spread sectors and equities as higher term premium could push credit and equity risk premia higher.

1. Rebalancing of Labor Market. The Jobs to Workers gap continues to tighten, led by a decline of job openings of 2.5 million jobs since the middle of 2022, signaling the easing of the labor backlog since COVID. The number of unemployed has remained relatively stable and has not risen significantly.

The Fed is Probably Done Hiking -- What's Next?

2. Inflation Expectations Normalizing. Consumer inflation surveys and market-based measures have normalized – the inflation psychology remains anchored to trend inflation. Falling inflation expectations is an additional positive data point that gives the FOMC the ability to stop raising policy rates. 


Content continues below advertisement

The Fed is Probably Done Hiking -- What's Next?

3. Bear Steepening of the Yield Curve. In early August, market concern shifted to the sustainability of fiscal spending and increased Treasury issuance. The expected path of Fed Funds has remained largely stable since the July FOMC meeting, while term premium popped higher – signaling that investors are demanding more premium for taking on longer maturities. As a result, the long end of the US yield curve moved higher while the short end remained largely the same – a rare “bear steepening” of the yield curve.

The Fed is Probably Done Hiking -- What's Next?

4. Real Interest Rates Could Start to Restrict Economic Growth. Real interest rates are the cost of capital for the US economy and have now closed the gap with US GDP. A negative GDP/Real Yield Gap has historically resulted in economic slowdowns, will this time be different?

The Fed is Probably Done Hiking -- What's Next?

5. Continue to Favor MBS Over Corporates. We continue to underweight corporate bonds versus MBS. The MBS basis is the most elevated versus corporate bond spreads in over 15 years. For a sector that provides a quality, liquidity, and spread pickup, we believe MBS continues to provide a compelling opportunity.

The Fed is Probably Done Hiking -- What's Next?

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

For more news, information, and analysis, visit the ETF Strategist Channel.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X