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Thoughts on the Market

Three Risks for the Third Quarter

Jul 26, 2024
Andrew Sheets, head of Corporate Credit Research at Morgan Stanley, sheds light on critical market risks as we head into the third quarter. He reveals that August and September often pose challenges for riskier assets, with high-yield bonds typically underperforming. Sheets discusses the shift in equity markets, noting recent struggles for large-cap tech stocks while smaller companies gain traction. He also emphasizes the importance of monitoring economic data that may affect credit performance. Tune in for insights on navigating the evolving financial landscape!
03:49

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Quick takeaways

  • Investors should approach the credit market cautiously during August and September due to historically poor performance of risky assets.
  • Recent shifts in equity markets indicate a need for investors to reassess portfolios as smaller companies outperform larger technology stocks.

Deep dives

Seasonal Risks in Credit Markets

The historical performance of riskier assets during August and September suggests a cautious approach for investors during these months. Data indicates that U.S. high-yield bonds typically underperform government bonds by about 1% in this period, marking it as the worst two-month stretch for these assets throughout the year. Although this trend is not catastrophic, it serves as a reminder for investors to tread lightly in the credit market during late summer. Given this seasonal pattern, adopting a more conservative investment strategy could be prudent as these months approach.

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