In his Dec. 3, 2024, review of November’s markets and macro news, DoubleLine Portfolio Manager Ken Shinoda discusses the implications of 2024's record-breaking year for equities and near-record year for fixed income spreads. He examines the progress of “Trump trades” following President-elect Donald Trump’s election victory and his calls for tariffs and deregulation, noting the moderation with Scott Bessent’s nomination to head the Treasury Department. Shinoda suggests shifting some investments from equities to fixed income due to stretched equity valuations and attractive yields in investment-grade and below-investment-grade bonds. While U.S. market returns and macro prints are positive, he highlights negative economic surprises and fixed income spreads outside the U.S., and is vigilant for any signs of weakening in U.S. macro data that could trigger a bond rally, though he expects a steepening of the Treasury curve in the long term.
Highlights:
(0:44) Trump trades: rallies in financial stocks anticipated and followed the Nov. 5 presidential election victory of Donald Trump, but have moderated with Scott Bessent’s nomination for Treasury secretary.
(1:32) Magnificent Seven stocks have rebounded after their summer pullback, though some tech trends are moving sideways, particularly the Nasdaq Composite Index versus the Russell 2000 Index.
(2:15) Speculative moves, including digital currencies and Tesla, have seen a run-up.
(3:36) Treasury yields have eased recently due to the Bessent nomination and technical conditions following a September-November selloff.
(4:27) Corporate credit spreads are tightening.
(5:56) Outside the U.S., more negative economic surprises are prevalent, especially in the euro area.
(6:38) The future federal funds interest rate, as discounted in the futures market, is projected to be 3.79% by the end of 2025.
(7:38) Positive fixed-income returns for November, except for CCC levered loans. Shinoda sees limited spread-tightening room in corporate credit markets, with IG assets offering mid-single-digit yields and below-IG market offering 7% to 9% yields.
(11:21) The cyclically adjusted price-to-earnings ratio has reached 38 as of Nov. 29, indicating historically muted stock returns. Shinoda still favors stocks as an inflation hedge but suggests adding more fixed income to portfolios given the lag in bonds and the surge in stocks.
Mr. Shinoda joined DoubleLine at inception in 2009. He is Chairman of the Structured Products Committee and oversees the non-Agency RMBS team specializing in investing in non-Agency mortgage-backed securities, residential whole loans and other mortgage-related opportunities. Mr. Shinoda is co-Portfolio Manager on the Total Return, Opportunistic Income, Income, Opportunistic MBS and Strategic MBS strategies. He is also lead Portfolio Manager overseeing the Mortgage Opportunities private funds. Mr. Shinoda is also a permanent member of the Fixed Income Asset Allocation Committee, as well as, participating in the Global Asset Allocation Committee. In addition, he hosts DoubleLine’s “Channel 11 News” (Twitter @DLineChannel11, dline11@doubleline.com), a webcast series that provides market insights and commentary with peers and industry experts. Prior to DoubleLine, Mr. Shinoda was Vice President at TCW where he worked in portfolio management and trading. He holds a B.S. in Business Administration from the University of Southern California and is a CFA® charterholder.
