J.P. Morgan Asset Management Global Market Strategist Stephanie Aliaga explains why higher yields are putting fixed income back in the spotlight.
So Stephanie, how do you trade around all of this? Or how do you invest around all of this? I guess more pertinently. It still feels like the AI trade is sort of driving the bus mostly for the equity market. Maybe like the Fed's the brakeman if
analogy, I don't know.
So how are you thinking about that?
Yeah. Well, the backup in yields that we've seen has actually made fixed income really attractive in portfolios these days. I mean, there is just a wall of worry that we're hearing from clients, especially around this AI trade, which I don't know how much of that is ultimately justified. I think, um, you know, beneath the hood, the fundamentals of this AI wave still remain really robust. The revenue growth, particularly specific to AI, is very strong. But we are entering a more discerning phase of this AI trade and not every company is going to shine as bright, particularly in an environment with higher financing costs. You know, you're seeing that in the business models of some of these companies. Not everyone can can can, you know, run as fast. But beyond that, I mean, we think that this is still a very constructive outlook for for risk assets. Um but you just want to make sure that you have that protection in portfolios. And the reality is, you know, the recessions of the past have all been the kind that have completely escaped even the most sophisticated of forecasts. So, um, you know, right now, particularly in fixed income, it's an attractive time to think about adding that to your portfolio.
If we get the hike we all expect in December, maybe another one in Q1 or Q2 of next year, does that picture stay the same? Does that change the calculus or is that already kind of priced in?
I think I think it's priced in and I think if the Fed can deliver these hikes and inflation is also cooling down, we don't have another flare up of the geopolitical situation, we might even see some relief, right? Because then we don't have as much of this concern about the Fed really needing to tighten interest rates. And maybe that also helps parts of the AI trade too because things had kind of gotten, you know, a little bit overstretched.
