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May 2019


Macro Views


The US economy may be past bottom now and we expect a rebound to 2.5% GDP growth in 2H 2019. Headwinds should fade as financial conditions ease, foreign growth improves, and trade and Brexit uncertainties subside. Globally, Chinese stimulus has shown through improved GDP and production data that should spill over to both EM and DM economies. Read More


US wage growth has remained subdued despite strong job data. Our analysis suggests that ~40% of wage growth is passed through to core inflation within two years. Though we have yet to see wages driving up core inflation, we think this poses a risk of a moderate overshoot of the Fed’s target. Read More

Monetary Policy

Global central banks have clearly taken a more dovish posture. In the US, we project one hike cumulative through the end of 2020. In Europe, we expect extended accommodation with a second set of targeted longer-term refinancing operations to start in September. Read More


We are watching for the potential impact of populism in the late May European Parliament (EP) elections. Eurosceptic parties are on track to achieve their strongest result yet, which may effectively bifurcate supranational governance. Simultaneously, the UK is also required to hold elections to the EP after accepting an Article 50 extension to October 31. If a Brexit deal is reached before May 22, the UK may reduce the likelihood of problematic scenarios. Read More

Market Views

Top O' The Market

Many investors today are seeking to preserve 2019’s sharp gains. With episodic volatility and US equities potentially normalizing to mid-single digit returns, we are favorable on diversified income strategies and buy-write as an approach to reorient returns toward income. Since 2000, annualized volatility on buy-write strategies were 15% lower than the S&P 500. Read More

Buyback Ban

Share buybacks have been elevated in the political discourse though the trend in cash returns is relatively on par since 1880. Over the last 15 years, buybacks have enhanced EPS above earnings by 2.5%. If buybacks were eliminated, cash would be redirected to the next most efficient use – dividends, M&A, debt reduction, but not likely new capital expenditure. Read More


This year’s positive returns in US equities and fixed income underscore the risk of positive asset correlations. We would highlight that globally, negative stock/bond correlation is still the trend. Our analysis suggests that shocks related to monetary policy, labor, and inflation tend to move markets together, while growth, trade, and demand tend to drive them apart. Read More

Japan Upgrade

Japanese equities are well-positioned in our view to benefit from recovering global growth. Light foreign positioning, improved profitability and return on equity, and reduced valuations make an attractive case. Read More

Muni Moves

Municipal technicals continue to be supported by 1) investors’ search for tax-free yield following the 2017 tax legislation, and 2) moderate new issue supply. We expect this favorable backdrop to persist with supply remaining low. In this market, we prefer the relative cheapness of longer-dated bonds over shorter-dated ones, and remain constructive on credit. Read More

Munis in Focus

Favorable technicals and solid fundamentals in municipal bonds have driven strong 2019 fund inflows. We expect the attraction of munis to continue, as demand remains strong and issuance is subdued. From an investment standpoint, the steepness of the muni curve relative to Treasuries offers potential opportunity to earn excess term premium. And the widening of the HY muni to IG muni yield differential to 259 bps, its highest in a year, points to credit diversification that may be well compensated.1

More ‘bang for your buck’

On a tax-equivalent basis, AAA-rated munis have continued to outyield Treasuries, and BBB-rated muni credit has remained attractive relative to other spread sectors. We believe adding credit to a muni portfolio may offer diversification and the opportunity to boost income.

Source: Bloomberg Barclays and GSAM.

Subdued supply

Lower issuance means supply is on track to undershoot the five-year average. Much of this is due to the elimination of tax-exempt advance refundings, which totaled ~15% of the issuance pool, as part of the Tax Cuts and Jobs Act in 2017. As a result of the reduced refunding flexibility, we believe that going forward we may see a gradual shift towards issuances with shorter maturity and bullet structures, further emphasizing the need for a dynamic approach.

Source: BondBuyer and GSAM.

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