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From rising inflation to the COVID Delta variant and more, there is no shortage of risks and challenges facing investors in today’s global market landscape. But from our perspective, many fixed income market participants have been more or less “looking past” such macro concerns in favor of a more upbeat narrative around continued economic recovery and growth. This narrative has gained ample support from the global trend of ongoing monetary and fiscal policy stimulus, particularly in the US, since the onset of COVID. What happens in Washington doesn’t stay in Washington.

With that in mind, let’s examine the key US government policy catalysts that have been moving fixed income markets in recent months and may continue to do so in the…

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Amar Reganti
Amar Reganti
Investment Director
Boston
Jitu Naidu
Investment Communications Manager
Boston

“We suggest that a budget constraint be replaced by an inflation constraint.”
— Three MMT economists in a 2019 letter to the Financial Times

MMT in a nutshell

Modern Monetary Theory (MMT) is often dismissed as a fringe concept regarding unlimited government spending, but it’s a bit more nuanced than that. Basically, MMT holds that a nation’s budget doesn’t (or shouldn’t) really constrain spending because the government can always print more money if needed. Thus, it’s the “real” economy — the production, purchase, and flow of goods and services — that truly matters.

Taking it a step further, the government can theoretically spend as much as it wants to until said spending begins to create excess demand, thereby generating inflation, at which point the government should…

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Nick Petrucelli
Nick Petrucelli
CFA
Portfolio Manager
Boston

Most of the past decade-plus has been characterized by declining interest rates and tightening credit spreads. Against this backdrop, many traditional fixed income benchmarks have performed well, particularly those with longer durations and meaningful credit components.

However, we believe 2021 could mark a transition to a new fixed income reality wrought by ongoing structural changes, potentially leading to more frequent dislocations across market sectors. Here we describe the secular forces that we believe are driving these changes, to be followed by a proposed solution for fixed income investors in our next blog post.

Structural shifts in consumer behavior

The COVID-19 crisis has driven increased adoption of technology and structural shifts in consumer behavior, some of which are…

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Emily Bannister
Emily Bannister
CFA
Investment Director
Boston
Richard Gilmartin
Rich Gilmartin
Investment Director
Boston

Hopes and expectations for generous fiscal stimulus to be delivered by the Biden administration are largely baked into the current market narrative. More broadly, the ongoing COVID-19 crisis has provided fresh justification for many of the social and economic policies long proposed by US Democrats — health care for all, stronger safety nets, entitlement protections. For the most part, I have viewed such proposals as fodder for future negotiations with Republicans, but as politically unrealistic given the partisan divide in Washington.

However, I now believe there’s a big paradigm shift in the making. It’s becomingly increasingly clear to me that economists close to the new administration want to fundamentally redefine how people think about government spending and responsible fiscal policy. If they can rewrite that narrative, so to speak, it could be…

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Jeremy Forster
Jeremy Forster
Fixed Income Portfolio Manager
Boston

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

FIGURE 1

There is pent-up demand to “get back to normal”

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

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Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

Figure 1

US Dallas Fed Mobility Engagement Index ("Social Distancing" Index)

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

MACRO
MARKETS

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

With the Democrats having secured a narrow sweep of the White House and Congress, where will the new Biden administration set its policy focus? We know that pandemic control and economic stimulus will be top priorities, and I expect climate change, trade, and inequality to be on the list as well — with a range of investment implications.

Starting with the health and economic crises

In his January 14 speech, Biden made it clear that he sees a need for more stimulus, as he rolled out a US$1.9 trillion proposal. The new president’s negotiating skills will be tested as he works to move the proposal forward, and the details and dollar amounts will surely evolve. Ultimately, I think the next package will come by March 14, when unemployment benefits are set to expire. In addition to an extension of those benefits, the package could include a third round of stimulus checks, more state and local aid, and an extension of the eviction moratorium. In addition, I would expect more…

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Juhi Dhawan headshot
Juhi Dhawan
PhD
Macro Strategist
Boston

With the Democrats having secured a narrow sweep of the White House and Congress, where will the new Biden administration set its policy focus? We know that pandemic control and economic stimulus will be top priorities, and I expect climate change, trade, and inequality to be on the list as well — with a range of investment implications.

Starting with the health and economic crises

In his January 14 speech, Biden made it clear that he sees a need for more stimulus, as he rolled out a US$1.9 trillion proposal. The new president’s negotiating skills will be tested as he works to move the proposal forward, and the details and dollar amounts will surely evolve. Ultimately, I think the next package will come by March 14, when unemployment benefits are set to expire. In addition to an extension of those benefits, the package could include a third round of stimulus checks, more state and local aid, and an extension of the eviction moratorium. In addition, I would expect more…

MACRO

ARCHIVED

Juhi Dhawan headshot
Juhi Dhawan
PhD
Macro Strategist
Boston

Previewing the Biden economic and foreign policy plans

In this 25-minute video, Geopolitical Strategist Thomas Mucha, Macro Strategist Michael Medeiros, and Multi-Asset Strategist Nanette Abuhoff Jacobson explore the investment implications of Biden’s domestic and foreign policy agenda and opine on which asset classes, factors, and industries they expect to outperform in this new environment.

video-iframe

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Thomas Mucha
Thomas Mucha
Geopolitical Strategist
Boston
Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston
Michael Medeiros
Michael Medeiros
CFA
Macro Strategist
Boston

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

Figure 1

There is pent-up demand to “get back to normal”

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

MACRO
MARKETS

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston
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