July 12, 2022

DoubleLine Macro Review and Outlook

In this July 12, 2022, webcast, Jeffrey Sherman (0:07) examines the macroeconomic landscape to date and analyzes the drivers of asset class returns for the remainder of 2022. Starting with reviews of global GDP (0:55) and U.S. GDP (5:43), Mr. Sherman takes note of considerable slowing in developed and emerging markets. He also points to the Atlanta Fed’s “GDP Now” estimate for 2Q2022, suggesting the world’s largest economy could see two consecutive negative quarters, slowing year-over-year GDP growth to 2½% by the end of 2022.

Turning to consumer prices (9:48), given “inflation is rampant across the globe,” Mr. Sherman strikes a note of skepticism on statements by Federal Reserve Chairman Jerome Powell that reduction of domestic demand through U.S. monetary tightening will tame inflation. Although not a result of Fed policies, Mr. Sherman says (12:00) the “there is some relief” in the global supply chain, which could help ease the inflationary picture. He also surveys a mixed bag of other inflation inputs, with the cost of housing (14:11) continuing to push up services inflation and “some year-over-year decrease” in producer prices (16:11) that might portend a cap on inflation.

Citing the U.S. Zero Coupon Inflation Swap Curve (18:08) and Treasury breakeven spreads (20:21), Jeffrey Sherman concludes the bond market “thinks we’re going back to these 2% inflation rates roughly in the next three years or so,” although the market expects “above 3%” inflation through 2024, absent a recession. The global bond market, however, has a cautionary message for stock investors. With the exception of Japan, whose central bank has parted company with rate-tightening monetarists in the rest of the world, developed market real rates have been rising (21:01). “Equity multiples tend to be correlated highly to the direction of real rates,” Mr. Sherman says. “So when real rates are going up, multiples tend to go down, and vice versa.”

While U-3 and U-6 jobless rates, not GDP prints alone, might ultimately decide whether economic-cycle daters in the future retroactively declare a U.S. recession (22:00), those are lagging indicators. So Jeffrey Sherman watches “unemployment claims as a precursor” for the labor market. So far, he notes, the U.S. labor market remains strong.

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About the Presenter

About the Presenter

  • Jeffrey Sherman, CFA

    Jeffrey Sherman, CFA

    As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.