In a changing domestic environment, a thoughtful assessment across and within asset classes is required. This includes an evaluation of both the sector and capitalization composition of investment portfolios. The domestic fixed income market has run in recent months, but we think bonds will continue to provide greater value than money market funds in the year to come.
Q4 Quarterly Edge Report
Welcome to the Quarterly Edge report by Blue Chip Partner’s Chief Investment Officer Daniel Dusina, CFA being interviewed by Managing Partner Daniel Seder, CFA, CMT, CFP®.
At the sector level, history indicates that consumer staples and health care can offer the strongest performance at the start of a rate cutting cycle. Along the same lines, small cap stocks have historically outperformed larger publicly traded businesses after the Federal Reserve begins to cut rates. In fixed income, domestic bonds can offer additional value relative to money market funds in a declining interest rate environment. Short-term Treasury yields tend to decline ahead of Fed rate cuts, and income distribution from money market funds generally follows shortly thereafter. Thus, we suggest tapping into high-quality bonds today to avoid the yield declines that will likely be experienced by money market fund investors over the next year.
Key Points from This Episode:
[00:01:14] Analysis of sector performance during previous rate cutting cycles, highlighting consumer staples and health care as top performers.
[00:02:10] Discussion on the defensive nature of certain sectors and their performance in a slowing economy.
[00:03:08] Overview of the bond market dynamics during rate cuts and the performance of rate-sensitive equity sectors like utilities.
[00:04:12] Examination of underperforming sectors such as financials and energy during rate-cutting cycles and the reasons behind their struggles.
[00:08:10] Impact of monetary policy on small-cap companies and how lower interest rates create favorable conditions for these businesses.
[00:10:20] The investment committee’s perspective on adapting asset allocations based on expected economic conditions.
[00:12:08] Insights into market valuations and the broadening of market performance beyond the “Magnificent Seven” tech giants.
[00:13:15] Review of the bond market as a “once-in-a-decade” opportunity and the factors driving bond price appreciation.
[00:16:35] Discussion on future rate cut expectations and their implications for money market funds and bond yields.
[00:19:15] Analysis of the corporate bond market and why it may offer more attractive value propositions than treasuries in the current environment.
Is it too late to jump on the bond train?
00:00:00:00 – 00:00:18:09
Reviewing the Quarterly Edge for Key 2024 Insights
00:00:18:10 – 00:00:45:18
Why Today’s Bond Market Is a Rare Investment Gem
00:00:45:20 – 00:01:08:16
Analyzing the Recent 7% Rally in the Bond Market
00:01:08:21 – 00:01:30:16
Bond Market vs. Money Markets: 4% Yield, 7% Total Return, 3% Price Appreciation
00:01:30:18 – 00:01:50:09
Choosing Bonds over 5% Money Market Funds: The Case for Price Appreciation
00:01:50:11 – 00:02:12:12
The Impact of Pre-News Price Movements
00:02:12:14 – 00:02:42:04
Bond Market Opportunities Persist Despite Missing the “Cocktail Hour”
00:02:42:06 – 00:03:09:22
Why Bonds Still Shine: Assessing Yield Prospects Amidst Dropping Money Market Rates
00:03:09:24 – 00:03:29:23
How Three-Month Treasury Bill Rates Forecast Money Market Yields
00:03:30:00 – 00:03:55:15
How T-Bill Trends Hint at Money Market Outcomes
00:03:55:17 – 00:04:16:24
Debt Securities as a Strong Income Play Beyond Money Markets
00:04:17:05 – 00:04:36:23
The Total Return Advantage of Bonds Amid Fed Cuts
00:04:36:23 – 00:05:00:24
Understanding Bond Pricing as the Market Anticipates Fed Cuts
00:05:01:01 – 00:05:21:21
Imagining the Impact of a 2.5% Rate Cut on Money Market Funds
00:05:21:24 – 00:05:38:21
Futures Market Skepticism on Projected Fed Rate Cuts
00:05:38:21 – 00:05:58:14
Capitalizing on Lower Money Market Rates Through Bonds
00:05:58:14 – 00:06:19:03
Benefiting from Bond Investments in a Low-Yield Environment
00:06:19:03 – 00:06:38:16
Finding Value in Corporate Bonds Despite Missing the Treasury Rally
00:06:38:19 – 00:06:55:12
Recession Resilience in Quality Business Issuances
Bonds are still attractive relative to money market funds.
In this weeks’ episode, a clip from Q4 Quarterly Edge report by Blue Chip Partner’s Chief Investment Officer Daniel Dusina, CFA, outlines the importance of getting out in front of the yield declines that money market funds are poised to experience over the next year. Watch the clip to get educated on our market predictions for Q4.
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Thus, we suggest high-quality bonds may avoid the yield declines that will likely be experienced by money market fund investors over the next year.
