Jul 13 2023 68 mins 4
Jeff Mayberry, Portfolio Manager on DoubleLine’s Macro Asset Allocation team, on July 10, gets graded by Jeffrey Sherman and Samuel Lau on his forecasts for 1H2023 and shares his outlooks for the second half of the year. Jeff Mayberry gets a win on his prediction on federal funds rate hikes (2:44), shared on the Sherman Show at the beginning of the year. The podcast hosts ask him for his take on the June jobs report (5:18), which for the first time in 15 months came in below expectations. “Maybe you’re starting to see some cracks in the labor market,” he says. Mr. Sherman notes that, contrary to market expectations that tightening credit conditions would take a bite out of employment, manufacturers have continued to add jobs while “restocking of the services sector” has added payrolls in that part of the economy.
One loss on Jeff Mayberry’s midyear scorecard (8:05) was view that the 10-year Treasury yield would not exceed 4% in 1H2023, although he did correctly predict that yield would settle into a higher range. The yield on the two-year Treasury, he thinks, could reach 5% (9:50), although he continues to watch out for labor market deterioration, which would send that yield lower. Mr. Mayberry’s 10% allocation to Treasury bills (11:56) proved a winner. He is keeping on his fixed income allocation for 1H2023 through 2H2023. That deployment forms a barbell between higher-yielding credit and longer-duration Treasuries, the government allocation aimed at offsetting a future widening of credit spreads if the economy enters recession.
Messrs. Sherman and Lau give Mr. Mayberry a “solid win” for his bullish call on technology stocks (15:50), the best-performing sector of the S&P 500 year-to-date. One losing theme turned out to be his favoring commodities (18:16), which among other headwinds had to contend with China’s failure to re-open its economy. The hosts and guest discuss the macroeconomic outlook for the United States. Amid weakness in manufacturing but resilience in services, and low unemployment (21:18), Jeff Mayberry expects the Fed to keep rates elevated the remainder of 2023. “The Fed doesn't want to say they want a recession,” he says. They don't want to say they need unemployment to rise, they need wages to fall, but they do in order to get inflation back down. That's what they're going to be focused on: wages and the labor market overall.” If the economy remains resilient, he expects the Fed to raise rates in 2H2023.
Mr. Sherman and Mr. Mayberry agree that the resumption of student loan payments (28:11), coming after three years of forbearance, could become a new headwind for the economy. “That's going to hurt consumers, it's going to hurt consumption” in some households, Mr. Mayberry says. However, he describes the odds of recession this year as “very low.” Notwithstanding that outlook, he advises preparing for trouble now by including longer-duration Treasuries in one’s portfolio (35:07). “If we're not getting a recession this year, you still want to have that barbell side, that flight-to-safety side, your long-duration Treasury side to kind of take some of the edge off of the spread-widening that would occur before a recession comes.”
The discussion turns to Mr. Mayberry’s outlook for emerging market and developed market ex-U.S. equities (39:25), cryptocurrency (41:08) and overall asset allocations, including cash and credit (42:23). As for fixed income, he would “avoid the investment grade credit market at 130 basis points over. I'd rather just go more high yield, more bank loans, more emerging markets, and then Treasuries to give you that duration. So one third in Treasuries, two thirds in credit.” As for U.S. equities (43:21), he does not expect the S&P 500 to match its performance in the first half of the year, and he advises some diversifying away from the market-cap-weighted large-cap index into other areas of the stock market, including mid- and small-cap stocks and value stocks.
One loss on Jeff Mayberry’s midyear scorecard (8:05) was view that the 10-year Treasury yield would not exceed 4% in 1H2023, although he did correctly predict that yield would settle into a higher range. The yield on the two-year Treasury, he thinks, could reach 5% (9:50), although he continues to watch out for labor market deterioration, which would send that yield lower. Mr. Mayberry’s 10% allocation to Treasury bills (11:56) proved a winner. He is keeping on his fixed income allocation for 1H2023 through 2H2023. That deployment forms a barbell between higher-yielding credit and longer-duration Treasuries, the government allocation aimed at offsetting a future widening of credit spreads if the economy enters recession.
Messrs. Sherman and Lau give Mr. Mayberry a “solid win” for his bullish call on technology stocks (15:50), the best-performing sector of the S&P 500 year-to-date. One losing theme turned out to be his favoring commodities (18:16), which among other headwinds had to contend with China’s failure to re-open its economy. The hosts and guest discuss the macroeconomic outlook for the United States. Amid weakness in manufacturing but resilience in services, and low unemployment (21:18), Jeff Mayberry expects the Fed to keep rates elevated the remainder of 2023. “The Fed doesn't want to say they want a recession,” he says. They don't want to say they need unemployment to rise, they need wages to fall, but they do in order to get inflation back down. That's what they're going to be focused on: wages and the labor market overall.” If the economy remains resilient, he expects the Fed to raise rates in 2H2023.
Mr. Sherman and Mr. Mayberry agree that the resumption of student loan payments (28:11), coming after three years of forbearance, could become a new headwind for the economy. “That's going to hurt consumers, it's going to hurt consumption” in some households, Mr. Mayberry says. However, he describes the odds of recession this year as “very low.” Notwithstanding that outlook, he advises preparing for trouble now by including longer-duration Treasuries in one’s portfolio (35:07). “If we're not getting a recession this year, you still want to have that barbell side, that flight-to-safety side, your long-duration Treasury side to kind of take some of the edge off of the spread-widening that would occur before a recession comes.”
The discussion turns to Mr. Mayberry’s outlook for emerging market and developed market ex-U.S. equities (39:25), cryptocurrency (41:08) and overall asset allocations, including cash and credit (42:23). As for fixed income, he would “avoid the investment grade credit market at 130 basis points over. I'd rather just go more high yield, more bank loans, more emerging markets, and then Treasuries to give you that duration. So one third in Treasuries, two thirds in credit.” As for U.S. equities (43:21), he does not expect the S&P 500 to match its performance in the first half of the year, and he advises some diversifying away from the market-cap-weighted large-cap index into other areas of the stock market, including mid- and small-cap stocks and value stocks.
