Market Outlook

Inflation appears to have peaked in the U.S., but wage growth and labor markets need to soften further before the Federal Reserve can start to lower rates.

The US CLO market was resilient in Q1 2023 delivering positive returns across the debt stack.

An unexpected shock in the banking sector has stress-tested the economy and policymakers. Both initially passed. But the impact on lending and credit conditions remains unclear and increases the likelihood of a mistake by the Fed going forward.

Moving away from an abnormal regime of crisis-era stimulus won’t be a smooth process. But the volatility should be easier to stomach knowing that the destination is likely to be a healthier, more balanced economy.

We expect rates to hold steady for longer than the market expects, but they could also fall off a cliff. Bond investors need to prepare for both scenarios.

Strains in parts of the financial system have prompted the Federal Reserve to trim back tightening plans. Though a somewhat darker economic outlook could drive credit spreads wider, we believe a potential downturn is likely to be mild.

In 4Q22, US CLO tranches exhibited strong returns across the stack as the loan market delivered positive returns in every month during the quarter.

Weak global growth for the year ahead appears almost certain. The outlook for capital markets is anything but.

Funding ratios rose again in 2022, putting plan sponsors in another surprisingly strong position. But with critical decisions looming, de-risking and diversification are paramount.

Looking ahead at the next decade of risks and returns in the markets