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Connor Fitzgerald

Connor Fitzgerald
Connor Fitzgerald
Fixed Income Portfolio Manager

Industry experience

With Wellington

15
6

As a portfolio manager, Connor works on the Investment Grade Credit Team where he helps manage risk across the different credit-specific mandates. Additionally, he helps to generate new investment ideas, as well as assist in formulating strategy with respect to the Investment Grade Credit asset class.

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As I consider various potential sources of market volatility over the coming months, the one I believe poses the biggest threat to today’s constructive backdrop for risk assets is so-called “bad inflation.” The costs of intermediate goods and inputs to production are climbing at their fastest pace in decades, which presents a likely headwind to corporate profit margins. Additionally, commodity prices are all rising in unison, be it coffee, corn, lumber, sugar, wheat, or gasoline, further straining corporate and consumer budgets.

Where the Fed may be wrong

The US Federal Reserve (Fed) has repeatedly stated its intention to “look through” the inflationary surge we’re seeing today, which it views as transitory. The Fed seems to assume that supply will quickly come back online as the economy reopens and recovers, allowing pricing pressures to abate. I hold a different view. I suspect that productive capacity for commodities in particular will not bounce back as swiftly as the Fed is forecasting. To be clear, I believe much of today’s bad inflation is being driven, either directly or indirectly, by these rising commodity prices and will therefore prove “stickier” and more stubborn than the Fed expects.

A paradigm shift in the making

As I see it, the public companies that have been rewarded the most over the past decade have behaved more or less like rent-seeking monopolies. Many investors covet steady, predictable cash flows to which they can apply a low discount rate. Conversely, some of the best…

MACRO
Connor Fitzgerald
Connor Fitzgerald
Fixed Income Portfolio Manager
Boston

Do low yields justify high stock prices? My colleague Ben Cooper recently penned a timely response to this age-old question. (Click here for Ben’s piece.) Actually, it was three possible answers — yes, no, and it depends — based on differing interpretations of the index-level data.

While I agree with many of Ben’s points, I’d like to take a somewhat different approach. My overarching view is that historical analysis of the relationship between interest rates (yields) and equity-market valuation (stock prices) is not particularly useful…

MACRO
MARKETS
Connor Fitzgerald
Connor Fitzgerald
Fixed Income Portfolio Manager
Boston
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I call it: “Cheap US equities: the low-rate adjustment.”

The strong post-March 2020 rebound in US equity prices rekindled rumblings about stretched or even “bubble-like” valuations. Myriad metrics can be rolled out to suggest “excessive” price levels, but how often do these arguments account for the broader investing landscape — inclusive of interest-rate expectations and the relative risk/return offered by US Treasuries? I believe they should.

Acceptance of paradigm shifts

One way to think about the relative value and appeal of equities is to look through a fixed income lens with a focus on risk-free rates. For the past decade, US stocks have remained cheap relative to Treasuries because…

I call it: “Cheap US equities: the low-rate adjustment.”

The strong post-March 2020 rebound in US equity prices rekindled rumblings about stretched or even “bubble-like” valuations. Myriad metrics can be rolled out to suggest “excessive” price levels, but how often do these arguments account for the broader investing landscape — inclusive of interest-rate expectations and the relative risk/return offered by US Treasuries? I believe they should.

Acceptance of paradigm shifts

One way to think about the relative value and appeal of equities is to look through a fixed income lens with a focus on risk-free rates. For the past decade, US stocks have remained cheap relative to Treasuries because…

I call it: “Cheap US equities: the low-rate adjustment.”

The strong post-March 2020 rebound in US equity prices rekindled rumblings about stretched or even “bubble-like” valuations. Myriad metrics can be rolled out to suggest “excessive” price levels, but how often do these arguments account for the broader investing landscape — inclusive of interest-rate expectations and the relative risk/return offered by US Treasuries? I believe they should.

Acceptance of paradigm shifts

One way to think about the relative value and appeal of equities is to look through a fixed income lens with a focus on risk-free rates. For the past decade, US stocks have remained cheap relative to Treasuries because…

MARKETS
Connor Fitzgerald
Connor Fitzgerald
Fixed Income Portfolio Manager
Boston

In my last blog post, I described how the shifting composition of the US equity market over the past 20 or 30 years has caused the S&P 500 Index to look more and more like a bond every day. Broadly speaking, there is now a far greater percentage of companies with “annuity-like” profits – recurring, scalable, and not capex-heavy to maintain.

This evolution has potentially important implications for the relationship between bond yields and stock prices. In short, I argued, a case can be made that low yields (like today’s) do in fact justify high stock prices (again, like today’s).

The more I think about it, the more sense it makes. After all, with government bonds and other areas of fixed income sporting record-low yields in today’s environment, why wouldn’t income-oriented investors…

MACRO
MARKETS
Connor Fitzgerald
Connor Fitzgerald
Fixed Income Portfolio Manager
Boston
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