Caputo analyzes the mid-cycle slowdown narrative, the implications of tightening private credit conditions, and how multi-strategy hedge funds are adapting their books in real time.
From the original report
Selected passages from the original publication. Historical observations reflect the report's publication date, not current market advice.
1) Fed Fireworks – Chair Powell’s FOMC October press conference proved consensus altering as he pushed back against the market’s expectations of third consecutive rate cut in December. Powell cited evidence of strong economic growth plus labor market stability and expressed a desire to move slowly given the absence of data (which he referred to as “driving in a fog”). This prompted markets to decrease the number of rate cuts expected by year end 2026 from five to three and pushed 10-year US bond yields up 10bps.
2) Market Narrowing – October equity performance proved highly concentrated with six mega cap tech companies accounting for more than 100% of S&P500 Index returns, while the Equal Weight S&P 500 declined. Chair Powell was also asked about the risk of AI spend falling off, as estimates suggest it could be adding as much as 1% to GDP growth.
3) Geopolitical Gyrations – While trade progress with China captured headlines, there was also a hardening of the Trump administration’s stance towards Russia. The US stepped up sanctions on Russian oil entities and is pursuing secondary sanctions on those importing Russian oil (with some effect). A presidential meeting in Budapest was also called off due to reports of Russian unwillingness to negotiate. With oil markets well supplied for the moment, this would seem like an ideal time to further pressure Russian oil revenues.
The where and how of credit – Credit is available in many different forms. Below we compare ETFs that invest directly in high yield (HY) bonds with those investing in regional banks and business development companies (BDCs). The contrast is striking with both regional banks and BDCs down sharply while HY bonds have barely budged. There are reasons for this, as banks and BDCs both operate with leverage and generally lend to smaller issuers. That said, investors with a positive credit outlook can find vastly differing entry points by looking beyond the bond.
For educational purposes only; not individualized investment, tax, or legal advice. Investing involves risk, including loss of principal.
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