We look at the markets today as, we're in a low stable growth environment, based on what policy has done on the fiscal side and the monetary side. Nothing has changed with our overall view. There are risks that have escalated a bit in the last month. Geopolitical risk in Russia and the Ukraine, uncertainty in the Gaza Strip, as well as some inflationary pressures and what the Fed is going to do.
All of these things have led to a bit of a pause in the market and a pullback in equity risk as well as spread risk. Nothing has changed in our view. Spreads are much tighter today, but the overall economic risk and volatility is much lower.
In fixed income, most assets around the world are still trading between 0 and 2 percent. If you move into equities, you trade with a much larger volatility and the drawdown risk associated to it.
So credit and high-yield credit is a good opportunity for those to create that extra income in fixed income portfolios but have less volatility than the equity market. So we think that the sell off is fair based off of the new risk in the market, but high yield is still a good asset class to own for the longer term.
Related by Topic: Economic Outlook , Fixed Income
Although last week was a challenging one for investors, we do not believe the sell-off reflects a fundamental shift in market conditions. However, Chief Investment Strategist Russ Koesterich discusses how it points to three important lessons to be mindful of going forward.