Episode 56: You missed the cocktail party, but the reception is just about to begin - Q4 Quarterly Edge Report

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Watch the episode on YouTube here https://youtu.be/slP0qDhDuU0

In a changing domestic environment, a thoughtful assessment across and within asset classes is required. This includes an evaluation of both the sector and capitalization composition of investment portfolios. The domestic fixed income market has run in recent months, but we think bonds will continue to provide greater value than money market funds in the year to come.

Welcome to the Quarterly Edge report by Blue Chip Partner’s Chief Investment Officer Daniel Dusina, CFA being interviewed by Managing Partner Daniel Seder, CFA, CMT, CFP®.

At the sector level, history indicates that consumer staples and health care can offer the strongest performance at the start of a rate cutting cycle. Along the same lines, small cap stocks have historically outperformed larger publicly traded businesses after the Federal Reserve begins to cut rates. In fixed income, domestic bonds can offer additional value relative to money market funds in a declining interest rate environment. Short-term Treasury yields tend to decline ahead of Fed rate cuts, and income distribution from money market funds generally follows shortly thereafter. Thus, we suggest tapping into high quality bonds today to avoid the yield declines that will likely be experienced by money market fund investors over the next year.

Key Points From This Episode:

[00:01:14] Analysis of sector performance during previous rate cutting cycles, highlighting consumer staples and healthcare as top performers.

[00:02:10] Discussion on the defensive nature of certain sectors and their performance in a slowing economy.

[00:03:08] Overview of the bond market dynamics during rate cuts and the performance of rate-sensitive equity sectors like utilities.

[00:04:12] Examination of underperforming sectors such as financials and energy during rate-cutting cycles and the reasons behind their struggles.

[00:08:10] Impact of monetary policy on small-cap companies and how lower interest rates create favorable conditions for these businesses.

[00:10:20] The investment committee’s perspective on adapting asset allocations based on expected economic conditions.

[00:12:08] Insights into market valuations and the broadening of market performance beyond the "Magnificent Seven" tech giants.

[00:13:15] Review of the bond market as a "once-in-a-decade" opportunity and the factors driving bond price appreciation.

[00:16:35] Discussion on future rate cut expectations and their implications for money market funds and bond yields.

[00:19:15] Analysis of the corporate bond market and why it may offer more attractive value propositions than treasuries in the current environment.

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