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.
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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, ShermanShow@Doubleline.com) 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.
Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.
Mr. Mayberry joined DoubleLine in 2009. He is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives‐based and multi‐asset strategies. Mr. Mayberry is a Strategist on the Fixed Income Asset Allocation (FIAA) committee and a contributing member on our Global Asset Allocation and Macro committees. He also co-hosts DoubleLine’s weekly Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcast. Prior to DoubleLine, Mr. Mayberry was a Senior Vice President at TCW for nine years within the Mortgage Group, where he specialized in portfolio and fund monitoring and analytics. He holds a B.S. in Engineering from Harvey Mudd College and an M.S. in Financial Engineering from the Peter F. Drucker Graduate School of Management at Claremont Graduate University.