John Bryson:

Hello. And welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at John Hancock Investment Management. In celebration of International Women's Day on March 8th, I've invited Julie Cronin and Sarah Walter to join our podcast. Julie is the senior vice president business consultant covering the Chicago land area for the last 25 years, and Sarah is a regional vice president covering Oregon parts of Washington and Idaho wholesaling since 2021. Couple of fun facts about Julie and Sarah. Sarah is currently training for her first 70.3 mile Ironman Triathlon, as we probably should call it, Ironwoman Triathlon. And Julie has a 94-week streak going for her Peloton, so we've got a couple of inspirational people on the call. And lastly, combined, Julie and Sarah have presented women in wealth seminars over 250 times to thousands of women across the country. They are often out working with financial advisors and financial professionals helping them grow their business, so I thought it'd be great to have them on the podcast. Welcome, Julie. Welcome, Sarah.

Julie Cronin:

Hi, John. It's so nice to be here today. Thanks for having me.

Sarah Walter:

Yes. Thank you, John. Excited to be here.

John Bryson:

Excellent. Sarah, I'm going to start with you. Why would you say it's important for women to take charge of their finances?

Sarah Walter:

Yeah. So where I would start with that question, John, and this is a stat that I think really surprises so many females. But recent studies have actually shown that 90% of women will have sole responsibility for their finances at some point in their life. 90%. As women have progressed over these last several decades, some women are choosing to remain single. We do have longer life expectancies. Recent studies have shown women outlive men by roughly six years, and as we're also seeing these days, are divorced later in life. And so when you combine all of those statistics together, that really again is going to mean nine out of every 10 women will be solely responsible.

That being said, sometimes women are really thrust into the role. It could be things like maybe they recently lost their spouse, maybe they're going through a divorce later in life, and as we know that those can be really emotional and stressful times. And sometimes when we're stressed out, we've got a lot of emotion going through, we don't make the best decisions, and that would likely not be the most ideal time to really take charge of something new. So one thing that I would just say to women everywhere is to really never underestimate your ability to take control of your finances, and we would certainly recommend starting as early as possible.

John Bryson:

That's great advice. I didn't realize that 90% number, but it certainly makes sense to be prepared before that crisis or challenging period hits. So what are some of the biggest differences that you see when it comes to male versus female investors?

Sarah Walter:

I think confidence is the first thing that comes to mind. There's actually a recent study done by the Global Financial Literacy Excellence Center, and they found that the gender gap in financial literacy can really be tied to confidence. Typically, women feel they know about two thirds of what men do when it comes to finance, but note that I said, feel. And so it's really interesting that when the same study removed the, don't know option, they actually found women selected the correct answer more oftentimes than their male counterparts. And due to this lack of confidence, a lot of married women sometimes leave the investing decisions up to their husbands as well, but if there's one thing to empower women all across the US right now, I would say a stat that I think is pretty cool is that we actually outperform men when we invest in the market, and there's really two clear reasons for that.

Number one, women tend to spend more time researching before we make an investment decision, which I would argue really leads directly into number two where we're less likely to panic sell during periods of high financial stress, arguably because we've taken the time to do our research ahead of time. Now, regardless of gender, of course... of course, having a financial strategy in place can help all of us meet our future with more confidence.

John Bryson:

Sarah, that's super helpful. Julie, I want to pull you into the conversation.

Julie Cronin:

Yeah, sure.

John Bryson:

As you know, the podcast here is about helping advisors build better outcomes for their clients and their practice. And when we think about financial professionals, why do you think it's important for them to focus on their female clientele?

Julie Cronin:

Yeah. That's a great question, John. A couple of different reasons. One is the statistics. I mean, just since I started giving women seminars 25 years ago to now, the statistics are so encouraging. I mean, now four out of all 10 businesses in the United States are owned by women. Women earn 58% of all bachelor degrees, and about 54% of working women are now the primary breadwinners in households, John. So those are some great statistics that tell us that financial professionals should be focusing on women. But also what we've found and what my advisors tell me is they're great clients to have because they're loyal, because they're more likely to follow the advice that financial professionals give them, and we even see that during downturns in the market, they're going to stay the course more. So I think it's great for women to have financial advisors, and it's also great for financial advisors to be focusing on women because of these kind of stats and these kind of qualities that women bring to their practice.

John Bryson:

Wow, excellent. Now, when you think about the financial professional landscape, I think it's safe to say that it's majority male, and maybe that should change, but specifically for male financial professionals, how do you see them engaging their female clientele, Sarah, and what's working about that?

Sarah Walter:

Yeah. So like I mentioned earlier, women do tend to have less confidence than men when it comes to making investment and financial decisions, so we're also less likely to speak up if we do have questions, if we do feel confused or if we're looking for a clarification, especially if we're in a room full of men. So a lot of my top advisors and top teams that I work with do host female only events, and they are very, very successful. They're really giving their clients an opportunity for them to grow their knowledge and skill base.

At a recent event I presented here a couple of weeks ago, several of the local financial professionals partnered together and were able to get over 100 attendees from a pretty small city here in Oregon, and it was an incredibly successful event. I think they were really clever and advertised it as a Galentine's Day event, which is always popular and fun for women. And it's also a really nice touchpoint for advisors if you do happen to have quite a few divorcees, if they happen to have quite a few female widows as well. Giving them a platform and an event space where they feel safe can further bond and just network with other women is really empowering for women of all ages and backgrounds.

John Bryson:

That's really interesting, having a client specific event focused on females. So let me ask you this, why is it important for financial professionals to serve their female clientele different than they might approach males? Or should they be very really careful when they are being different?

Sarah Walter:

Yes. So I think that you do have to recognize there are some differences. So again, recent statistics do show that women outlive men by roughly six years. Therefore, it's more likely that a woman will become a widow versus a male as they age, and this might be surprising, but the average age of widowhood here in the US is only 59 years old. So for financial professionals to have a really strong understanding on things like social security benefits for survivors, updating estate plans, possibly being the executor of their deceased loved one's estate, these are all really vital topics for those professionals to work through with their clients, especially their female clients, as they will more than likely fall into that role.

And I think what's also really important to note is that by the end of this decade, baby boomers alone are projected to be worth over $30 trillion with women controlling the majority of these assets. So if financial professionals do not have a strong of a relationship with the likely surviving wife, these assets could surely be ripe for transferring out as well, so I think that's another reason for financial professionals to really step up to the plate and make sure they're giving the right amount of education and knowledge to their female clientele.

John Bryson:

So Julie, kind of building off what Sarah said, with your 25 years of experience, how does this play into financial professionals best serving each gender?

Julie Cronin:

Yeah. That's a great question, John. I feel there's always been this back and forth talking to women and men and working with them when it comes to investing. Is it really that different? And certainly, there's things that are similar. There's certainly things that advisors are going to have similar conversations with them, but when it does come to men and women, there's also some big differences. What we've seen, John Hancock talks about it, there's some pivotal moments in women's lives that we find that they seek up financial advisors more than men, and Sarah talked about some of them, divorce for sure and then widow. A study that I saw recently showed that 70% of women, when they become widowed, that's when they start to look for a new advisor and a new financial professional and change the relationship that they have.

And I can just tell you quickly, John, a personal story. I know when my father passed away, which has been about 20 years now, my mom was young, she was 67, within a year, she had switched her financial advisor, and the reason was my dad didn't need as much service. He didn't need as many touchpoints, and my mom wanted that and needed that, and I think that gets to what women want. They want more of a holistic approach to planning. They want a lot of times more service and more touch, and I think advisors are good about and starting to really figure that out and tailor their practice that way.

John Bryson:

So that customization, when you think about what financial professionals are doing now, the ones that are doing a truly excellent job of serving the female community, what are they doing different? Build on that for me.

Julie Cronin:

Yeah. I think what they're doing, in my opinion and what I've seen is it's really the service, a couple of different things. So first I'll start with John, is the service element of it. I think particularly women clients, Sarah talked about it, the age of widowhood in this country. As women clients are getting older and they're alone, I think they're really relying on their financial professionals to go above and beyond. I'll give an example. I know financial professionals that I work with here in the Chicago [inaudible 00:11:57], doing things like driving their women clients to the bank to get things done. Or if you give an example, again involving my mom, when she sold her house to move into retirement community, the professional that she worked with was very hands-on, brought her to the bank, did a lot of different meetings with her during that process.

So I think going above and beyond in that level of service is a huge thing. And then secondly, I think we see is women want the steps on how to invest, and also studies show they don't like the jargon, John. They don't as much of the investment jargon. They want straight talking, and I think what I've seen is the financial professionals that have figured out how to talk to women in that way are more likely to attract women clients. And I will say, they also tell me that the women clients are their best clients. They want more women clients because they are loyal, because they do give referrals, so that's what I see out there, John.

John Bryson:

Wow, I love that. Service and straight talk being the top two that resonated with me right there. So Sarah, we've got a new presentation at John Hancock Investment Management, Women Wealth and Wisdom. Can you walk us through some of the case studies that are available in that presentation?

Sarah Walter:

Absolutely. So this is a presentation that me, Julie and several other women in our organization have been working on for, gosh, two years maybe, or maybe it's felt like two years. But we really wanted to put together a very comprehensive presentation that can really be geared to every financial professional's unique female clientele. So with that being said, the first thing I would point out on this presentation is number one, it's designed to empower women. I think women are oftentimes not empowered when it comes to financial decisions and investing. So number one, we're wanting to absolutely empower women, but as we've been talking throughout this presentation is there are certain situations that women are more likely to find themselves in. So what we've done is we've put together eight different unique case studies of potential life events that a woman might find herself in or just a unique situation that, that woman might be in.

So for example, one of my most popular topics so far as I've given this presentation several times already just in the last month, is caring for a loved one. So caring for a loved one is one of our 8 case studies, which is a really, really powerful one as we can all agree. The statistics surrounding dementia, Alzheimer's, it seems like it's continuing to increase year over year, and this can be of course, a financially taxing time, but it can also be so emotional for clientele and for loved ones. So we've put together a really comprehensive case study where we're going to do a deep dive on what it looks like when it comes to caring for a loved one, what should that caregiver be thinking about? How do we approach some of those conversations with a loved one? And so that is really, really powerful. I think it's going to give everyone a lot of talking points.

And it's also going to make sure that we as maybe younger caregiver type age people have thought about our own long-term care. We've thought about our own health as we age. We've thought about where and how we want that to look like. We as women do tend to be caregivers more frequently than men, and so I think that's also really important for females to have the right skills in place should they find themselves in that scenario. Other popular topics like Julie mentioned earlier, are entering widowhood. One for the newly divorced, and I love this one, female business owners. As we know women are continuing to launch their own businesses. In fact, one study I just saw is women are launching new businesses at twice the rate as men, so a lot of advisors might not have, let's say, a huge conglomeration of female business owners, but if they do have a few, let's be sure that we are really giving them the right advice for their own unique scenario.

So I think that's a really fun unique case study that we've put together, so those are just kind of a snippet of a few. Again, like I said, we've actually put together eight. One that may be of interest is the female investor who's wanting to leave a legacy through philanthropic giving, so I think that one also has a really unique... It can be really unique for the right clientele as well, for advisors to continue to showcase everything that they do, which again, oftentimes is leaving a legacy in a variety of different means.

John Bryson:

Well, I think I need to go look at some of those case studies because we're dealing with that, taking care of the older generation situation right now in my family. And the other thing I'd ask is, while this presentation is for financial advisors and focusing a lot on women, male and female financial advisors could sit in this presentation and get great insights for their clients. Is that the way I should interpret it?

Sarah Walter:

Absolutely. So I'm glad you brought that up because a lot of these scenarios can be very similar for both males as well as females. And one thing that we've also put together, John, is we've put together a checklist in guidebooks for all of these case studies, so these are actually just great checklists that frankly anyone could go on our website, jhinvestments.com to pull up because if you are going through one of these scenarios and you're wanting to make sure all of our Ts are crossed and I are dotted, this could be a great resource just as a standalone resource, and it could also be a standalone resource for advisors to walk through with their clients as well. So there's a lot of different things that we've focused in on with this presentation, but like you said, it's not just a presentation and it's not just for women. I would say again, it's very applicable also to males that might be going through any of these scenarios, and we've put together workbooks and checklists that anyone has access to.

John Bryson:

That's great. Thanks for sharing that. So Julie, you've given a lot of these women's seminars over the years. What are some of the best practices that you've seen around execution? What are the right venues? Are there other investment professionals that you recommend people partner with? We heard about Galentine's, anything that makes it special to make these successful?

Julie Cronin:

Sure. That's a great question, John. And as mentioned, Sarah and I both have given a lot of these over the years. I was just going to pick a couple of things that I think are really worth noting or that stand out about these types of presentations. I've found that for women's events, smaller, more intimate ones can work well because women will feel more comfortable asking questions. So that doesn't mean you can't do a large one, but I think sometimes a more intimate one, you really get to know the prospects in the room or the current clients that you have. I did a breakfast one about a year ago where there was just 10 of us sitting around a table. It was at a private club, but you could also do a regular restaurant in a private room, and we all went around the table and introduced ourselves because oftentimes we don't know each other.

And then we all shared a story about money or what it meant to us because we all have a story about money and how that shapes us. In that way we all feel comfortable talking and sharing as the conversation went on, so I think something like that is a great thing. I think another thing that's great is if you're going to do it with business owners like Sarah talked about or working women, doing it after work, doing something where you're giving the first half hour to allow women to network with each other. I think that goes a long way. Women appreciate that. We're social, so we like to talk to other people, find out their stories. I think that's a great thing to do. And then just a couple of other ones quickly, intergenerational type women events are fantastic where you're inviting your client and asking them to bring their daughter or their granddaughter.

I've done that over afternoon teas, and I think that one's a great one that works well there. And then as far as just partnering with other professionals, after all these years of doing this, I still do women and fashion seminars. And I know some people may be like, "Really?" And yeah, they've been going on for 25 years, but sometimes if you want to add an element of fun to a seminar, it can go well. And I've also done a great one recently on Women and Organize with the whole idea of, "Organize your house and then organize your finances." So there's a lot of great tie-ins if you want to also add a little bit of a fun element to it, John. But again, so many more, but those are just some that I think have been the best over the years.

John Bryson:

Oh, those are great ideas. I love those. So last question and Julie, I'm going to send it to you. When we think about International Women's Day, it's all about celebrating women, embracing equity and positive changes. So what are?

Julie Cronin:

Yeah, great question. And Sarah's shared a lot of great statistics, and we've come a long way as far as for women in investing. I think one, a statistic that we have in our presentation right now it's, 30% more of married women are making financial investment decisions right off the bat. That's a great stat and a great number to share, and I guess, what I'm trying to say is as far as we've come, what's still shocking to me is UBS just did a survey recently and they discussed how the majority of married women globally still let their husbands make their financial decisions. So John, what I'm trying to say is we've come a long way, but we've got a ways to go, and why is that? Well, I think it's because it's historical and social precedencies, it's traditional gender roles, but the finance is not something you can divide and conquer. Both people need to be involved in that. If you're in a marriage, both of you, or if you've let somebody else in your family do it, you need to take control.

And the other thing is, Sarah talked really well about it earlier, it's just confidence. It just continues to come out that women aren't as confident as men, but that they should be because oftentimes they're making the better decision as Sarah talked about they're doing better when it comes to investing, but it's a confidence, and that's what I think where are advisors can really help women, to push them to become more confident, to push them, to take a bigger role, to invite them to events, to educate them more because I think the more we can do that, the better off we're all going to be. So those would be some of my thoughts on that, John.

John Bryson:

That's excellent. Hey, this has been a fantastic conversation. It's making me rethink how we approach finances in the Bryson household. I think men can probably be not only confident, overconfident, and maybe that's why we're not as good investors over the long-term, so I'm going to be thinking about that. Well, first off, Julie, Sarah, thanks so much for sharing your insights, really inspiring, very informative. Folks, if you are in the Chicago area or Oregon and parts of Washington and Idaho and you want to have Julie or Sarah come and talk to your clients, I'm sure they would be thrilled to, so just reach out to them.

If you are interested in more of what we have to offer, please subscribe to the Portfolio Intelligence podcast. You can do it on iTunes or you can do it on our website jhinvestments.com. You can get all of our information, whether it is partnering with women and growing their wealth or anything around investments on our website, so please check it out. You're going to get great business building ideas like you got today and much, much more. As always, thanks so much for listening to the show.

Sarah Walter:

Thank you.

Important disclosure:

This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.

Please see the Women, Wealth, and Wisdom presentation on our web site, jhinvestments.com, for more details on topics covered in this podcast.

John Bryson:

Hello and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at John Hancock Investment Management. Today is February 6th, 2023, and I've invited Emily R. Roland, CIMA, and Matthew D. Miskin, CFA, our co-chief investment strategists here at John Hancock Investment Management to our podcast. As a reminder, Matt and Emily are the architects behind our quarterly capital markets outlook piece titled Market Intelligence. Matt, Emily, welcome to the podcast.

Emily Roland:

Thanks for having us.

Matthew Miskin:

Yeah, thanks for having us.

John Bryson:

Hey, Matt, I'm going to start with you. Last week we had our first FOMC meeting of the year. Can you walk us through what happened, and what's the latest with the Fed?

Matthew Miskin:

Yeah, so the Fed raised rates 0.25% as it expected. This was pretty well telegraphed at this point. In terms of what Powell sees from here, he said several potential rate hikes, ongoing rate hikes, the job of fighting inflation is not done, but he did say disinflation a good amount. So while the absolute level of inflation is still elevated, they have been seeing the trend decelerate here and that disinflationary comment from Powell sparked a bit of a risk on rally across markets. In addition, Powell really didn't push back on what has been asked or talked about, financial conditions. So financial conditions are things like the dollar, high yield spreads, interest rates, and they've eased a lot in the last three to four months. They had been tightening and now they're easing. And he really said still they were very tight and the market kind of said, look, if you think they're tight, even though they've eased, that's a dovish view of that.

And market's also rallied on that. So he's actually speaking again tomorrow. There might be a bit of a walk back in some of his comments, a little more hawkish. At the end of the day though, it doesn't really change to us the trajectory much and the bond market is still pricing in one to two rate hikes in the first half to kind of conclude the rate hiking cycle and then unpause and then cuts by the end of the year. And that's still kind of the trajectory. The data has been mixed. It's all over the place, and that's really what's going to influence the Fed from here. But in terms of our first hurdle of the Fed and the first Fed meeting of the year, we've gotten through it. It's still a bit choppy, but the trajectory hasn't changed that much, all things considered.

John Bryson:

Okay. So Emily, Matt had said the fact that the Fed raised by 25 basis points wasn't a big surprise, it was forecast, but what was a big surprise was the jobs report. Can you talk about it and its impact?

Emily Roland:

Yeah, so massive upside surprise on the January jobs report, we saw payroll gains coming in at 517,000, well above the estimate for 185,000. We also saw big revisions to the prior two months, to the tune of 71,000 jobs. So just absolute blowout report. We do want to be mindful of over-emphasizing one report, especially this one. There's some odd sort of seasonal patterns that happen in January. There was also some adjustments to some calculations that the Bureau of Labor Statistics made around the population survey. So we want to be mindful that the data could potentially have been sort of a little wonky or distorted because of that, but still a very hot jobs report. And it does complicate the Fed's job.

So Matt talked about the mentions that Powell made on disinflation and that being a bit of a sort of dovish approach. And then two days later, here you go, there's this job report that indicates that the labor market's incredibly tight, unemployment at 3.4%, that's the lowest level in almost 60 years, really wage pressures cooling a little bit, but remaining really elevated at four point half percent almost on a year-over-year basis. So wage growth of course being a key element of inflation. And the Fed's goal here is to temper that.

So it's making things a bit more complicated. There were some things in here that the Fed was probably pretty happy with. The participation rate is one, so more people are reentering the workforce. That ticked up a little bit. And when more people are looking for work, of course that can help bring down wage growth, bring down inflation. So that was certainly something that the Fed probably liked. But in terms of the market reaction, it was definitely a good news is bad news one. So in other words, the tighter the labor market, it really sort of decreases the likelihood that the Fed can pause here sooner rather than later. So we saw stocks lower, bond yields higher, a stronger dollar, which is something that Matt and I have really been pointing out as one of the key dynamics that's been sort of responsible for a lot of the cross asset performance, and we'll talk about this, but the weaker dollar really starting in the fourth quarter into this year has really been supportive of the rally and risk assets and the stronger dollar is basically the opposite of that.

So I think that was a notable element of the market reaction there. And then happy to talk about investment implications, but we may get to that shortly.

John Bryson:

Yeah, definitely will. So Matt, it's interesting, Emily said twice the data is complicating matters. I think the other thing that's complicating matters is the fact that we're about halfway through earning season and it might not jive with a risk on environment. So how's earning season been going?

Matthew Miskin:

Yeah, it's holding in okay, but then when you look at it relative to the last several years and even you strip out COVID and you just think about how typically earnings come in, it's frankly not great. Last week for example, you got the biggest market capitalization companies in the world, some of those big tech stocks reporting earnings and most missed estimates. Some are now doing buybacks. There's a big buyback revival right now, which is helping in essence the market's response. And the thought being, if you take away share count, that can help mitigate kind of the earnings downside. But we are tracking about two and a half percent earnings estimates growth for 2023. We were at five just to start the year. So there's been a decrease in earnings revisions in 2023. What we're seeing in terms of what the leadership is, some of the cyclical sides of the market, like financials, consumer discretionary had really high estimates. Their earnings in Q4 weren't great. So they need to really come up with a recovery to meet the higher bar.

The market has rallied as earnings estimates have gone down. So now we're looking at over an 18 times forward price to earnings ratio, which is pretty elevated versus history. So when we put this all together, it's a tough backdrop, frankly, fundamentally, and we're trying to look for companies that have better balance sheets because if they need cost of capital to survive or they need capital to survive butt the cost of capital's too much right now, we're looking for companies that aren't overly expensive, trying to mitigate valuation risk by not looking at the most expensive parts of the market. And for us, it's kind of leaning on certain factors in the markets and from a bottom up basis looking for those strategies that have a process where quality and value are two key tenets to navigate this challenging earnings backdrop.

John Bryson:

So Emily, I'm going to complicate it a little bit further and then ask both you and Matt to kind of pull it together for us. But one more complicating factor I'm going to throw out there is the US-China relations and its impact on globalization trends. What are you seeing there?

Emily Roland:

Yeah, so definitely switching gears a bit here, but there has been some developments as of late that have really shown a spotlight in the challenges we've seen to US-China relations. And I'll start by saying that we rely on a network of political strategists to help inform our thinking here. And it's really difficult to make immediate investment conclusions based on this, but there are some longer term trends in place, and one of those is de-globalization. We've seen over the past number of decades, we've seen globalization really taking hold. US businesses creating consumers outside of the US, moving supply chains. And we've seen policies start to move in the other direction here as geopolitical risks increase. So what we're seeing is this recognition from a lot of CEOs, and not only is it here, it's in other parts of the world, realizing that they don't want to be overly reliant on global supply chains.

And there's a recognition in the US that if you're going to sell it here, you're going to increasingly be making it in the US. And we're seeing that reflected in, back to tying it to earnings, earnings calls, we're hearing over and over these words of on-shoring and re-shoring, again, bringing supply chains back here. And Matt and I are frequently on the road and I think we can see it. Middle America I think is fertile ground for this sort of new industrial revolution that's happening in the US. And we look to think about this more secular trend and how it benefits companies in the middle America part of the country as well as mid-cap equities which have over-weights to areas like industrials, materials, think sort of building, construction, trucking. There's a lot of infrastructure spending going on here as those supply chains relocate. So that's the way we're thinking about this longer term trend around potential de-globalization.

John Bryson:

That's really helpful. Maybe now I'll ask because we've hit a couple of different topics between the Fed, the economic data, earning season, et cetera. Emily, how are you talking to clients about pulling it all together and how they should be positioning their portfolios as we're one month into 2023? And then Matt, I'll ask you to comment anything else you'd add to that story?

Emily Roland:

Yeah, I think Matt did a great job of highlighting how tricky this backdrop is because on one hand, we're getting evidence that we're not in a recession. I think it's tough to say with the unemployment rate at the lowest level in 60 years that we're in a recession. But the other economic data that we watch really closely, things like the leading economic indicators, that negative 6% year over year, the yield curve inverted to the tune of almost 80 basis points. The PMIs, which is purchasing managers indices, a really timely read on the health of an underlying economy, suggesting that we're in contraction here and that economic growth is decelerating across the globe. But you're getting this, again, this choppiness in economic data, which makes it tricky. And we're seeing a sort of mismatch between what we would expect in terms of cross asset performance given those leading indicators, the yield curve, the PMIs, would be a risk off period.

But we're seeing this kind of really very cyclically oriented risk on move in the markets as investors sort of celebrate, for lack of a better word, the slow-down in inflation, which has been one of the biggest enemies to the market over the past year or so. So we're advising investors to be careful. It is incredibly easy to get whipsawed in this type of environment. We don't want to be reaching for returns in the riskier corners of the market. And as Matt mentioned, we continue to suggest that investors increase quality, emphasize value, look to more defensive equities, and frankly, we continue to see the income on high quality bonds is really extremely competitive versus other options given our analysis, which suggests that a recession does likely unfold later in 2023.

John Bryson:

Excellent. Matt, what would you add? I know you're cautious by nature and a long-term investor, but what would you add to Emily's comments?

Matthew Miskin:

Yeah, I think on the fixed income side, it is also challenging. I mean, we keep having the 10-year treasury yield kind of back up or hit around 3.40% and then bouncing, it feels like it's about to break down. And now we're almost at 3.6 this morning. So we're kind of in this trading and choppy range, even for treasury yields, which is then influencing broader bond markets. But we would be patient and look for high quality yield here today. The last couple rate hikes of the Fed, usually the scenario is that the 10-year treasury yield peaks out before the Fed funds rate peaks out within months of it. So if the Fed funds rate is going to be peaking in terms of its cycle high in the next several months, usually the 10-year treasury yield is peaking several months before that. So where we are now. In addition, in recessions, the average decline over the last three recessions of the 10-year treasury yield is 2.65%, and the average amount of Fed cuts is 4.25%.

So what we want to do is make sure we don't miss that duration tailwind, meaning interest rates falling into a recession because if you miss that, then you can't lock in or you can't basically move into that duration and get that longer maturity. And we're looking at seven to 10 year maturity type fixed income options in the higher quality profile because we want that not just for next year, the year after that, the year after that, and the year after that. And what we're looking at is about 5 to 6% in high quality income. We think that's going to be really competitive longer term. And so again, to Emily's comments, not getting whipsawed here, making sure you're thinking about the next phase of the cycle and in bonds right now, we think the return potential is actually really attractive given what we see unfolding in leading economic indicators.

John Bryson:

Folks, it's a fluid market out there. There's always new data being put forth, but Matt and Emily are both all over it. They are producing more and more insights on a regular basis. If you're not, you should follow them on LinkedIn or on Twitter to get their latest. And if you want to hear more from us, please subscribe to the Portfolio Intelligence podcast on iTunes or visit our website, jhinvestments.com to read our viewpoints on macro trends, portfolio construction techniques, business building ideas, and much, much more. Matt, Emily, thank you. And to the audience, thanks so much for listening to the show.

Matthew Miskin:

Thanks.

Emily Roland:

Thank you.

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