Kathryn Kaminski says a 6% 10-year yield is not crazy. Vincent Reinhart says current yield levels are sustainable. Chuck Grom says signs of a discretionary recession are emerging. David Rubenstein says fixed income returns are better than a year ago. The podcast also discusses market signals, higher rates, and the sustainability of yields, as well as the shift from services to goods and the state of pensions in the US.
The market is aligning with short signals in fixed income, indicating the potential for higher rates to persist.
Market participants are adapting to the changing landscape by recognizing the importance of short-term returns and long-term cash flows.
Deep dives
Short signals and market agreement in fixed income
The podcast discusses the recent short signals in fixed income and how the market is starting to agree with them. Despite short signals being present throughout the year, the recent market reaction and the alignment of fundamental players suggest the potential for higher rates to persist. The podcast explores the transition period as the yield curve flattens, indicating a shift towards short-term returns. The discussion also touches on the potential implications of a steeper curve and the realization of why holding long-term debt may not be favorable in the current environment.
Behavior and market agreement on higher rates
The podcast delves into the behavior of market participants concerning higher rates. It suggests that the market is waiting to see if the projected higher rates will materialize and agrees with the narrative of higher rates becoming the new normal in a post-pandemic economy with notable inflation. The increased agreement among technical signals and fundamental investors demonstrates growing recognition of the importance of long-term cash flows and the potential benefits of short-term returns. The podcast emphasizes the role of behavior in driving market trends and how market participants are adapting to the changing landscape.
Positive correlation between stocks and higher yields
The podcast highlights the interesting dynamics between stocks and higher yields, referencing the recent environment where stocks rallied alongside yields reaching 16-year highs. While this positive correlation can indicate the market's acceptance of higher rates, there is caution regarding the sustainability of this correlation and the possibility of short-term relief rallies. The discussion suggests the need to closely monitor the correlation trade going forward. It underlines the significance of understanding the market's response to higher yields and the implications for risk markets.
Retail challenges and resilience
The podcast touches on retail challenges and resilience, specifically addressing the recent earnings reports from Macy's, Lowe's, and Dick's Sporting Goods. While some retailers face difficulties, others show signs of stabilization, particularly in areas such as home furnishings. The discussion mentions the impact of theft on retailers and the need for price tolerance and inventory management. Overall, the podcast emphasizes mixed data points in the retail sector and highlights the role of consumer behavior and savings in shaping the industry's performance.
Kathryn Kaminski, AlphaSimplex Chief Research Strategist, says a 6% 10-year yield is not crazy. Vincent Reinhart, Chief Economist and Macro Strategist Dreyfus and Mellon, says current yield levels are sustainable. Chuck Grom, Gordon Haskett Senior Retail Analyst, says we are seeing signs of a discretionary recession. David Rubenstein, Carlyle Group Co-Chairman and Co-Founder, says fixed income returns are better than a year ago. Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance