Market Review
May was another volatile month in the rates markets, although nowhere near what was experienced by the equity markets. The Federal Reserve increased the fed funds rate by 50 basis points (bps) early in the month and made clear that additional hikes of that magnitude would be forthcoming along with a reduction in the size of the Fed’s balance sheet. This month’s inflation prints offered no relief, generally coming in higher than expected.
Read moreAs we approach the midway point in the year, we have seen a markedly negative shift in sentiment around ESG. This has largely been attributable to year-to-date performance challenges, exaggerations of positive ESG impacts (greenwashing), and criticisms from state officials and outspoken billionaires alike. The most recent target is one of the largest U.S. credit rating agencies, which has been accused of incorporating “politically subjective” ESG criteria in its assessment of public debt. This month, we also highlight an empirical study that supports our approach to ESG analysis, as well as trends we are monitoring in human capital, product safety, and supply chain management.
Read moreIn prior pieces, we have discussed risks associated with energy dependence that have emerged as a result of the ongoing war in Europe. While the primary concerns of investors, corporations, and policymakers have been focused on conventional oil and gas, we explore the prevalence of these risks across the clean energy transition supply chain as well. This month, we also review the merits of sound corporate governance and why it has been an integral component of our fundamental analysis for decades. Finally, we highlight ESG-related comments from Q1 corporate earnings releases.
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April was another challenging month for financial markets. The Bloomberg U.S. Treasury index returned -3.21% for the period. The yield on the 10-year Treasury rose a remarkable 60 basis points (bps); the 30-year bond finished the month at 2.9%. The slope of the curve shifted frequently, and by month-end the 2-10s slope had gone from flat to 22 bps. Volatility was high.
Current pricing in the bond market makes last year’s discussions about rate increases seem almost quaint. It was only a few short months ago that the debate was centered on two or three fed funds rate hikes during 2022. Instead, we have already had one increase, and the futures market is projecting over 200 basis points of additional hikes this year.
Read moreAs the war in Eastern Europe wages on, policymakers have wrestled with enforcing punitive measures on Russia at the expense of higher inflation and diminished energy security for the rest of the world.
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