Janus Henderson Investors Finds Signs Of A Fragile Economic Environment
Denver-based Janus Henderson Investors is finding signs of a potentially more fragile economic environment beneath a seemingly resilient U.S. economy. According to Adam Hetts, the portfolio manager and global head of multi-asset investing for Janus Henderson, the recent meteoric rise in the inflation-adjusted or real yield of the 10-year Treasury yield indicates the highest cost of capital that U.S. businesses and households have faced in over a decade.
Higher real yields can drive more investors into cash-like vehicles and make riskier options like stocks less attractive. The nominal 10-year yield recently rose through 5% and traded around 4.6%, while inflation has subsided, indicating a potential regime change in rates, Hetts wrote in a commentary distributed by Janus Henderson on their firm’s website.
This sentiment is not unique to Janus Henderson. Pershing Square’s Bill Ackman and Bill Gross, a co-founder of Pacific Investment Management Co., have also stated that they see a slowing U.S. economy and foresee a recession unfolding by year-end.
As a result, Janus Henderson is recommending that investors prioritize quality companies capable of steady cash flows and possessing sound financials as they enter the later stages of the current economic cycle.
Reasons for the firm’s negative outlook on the U.S. economy include the diminishing personal savings and the reliance on credit cards, anticipation of higher rates for longer, and relatively low-quality corporate bonds that have not yet reflected the risks posed by higher interest rates. Additionally, not all sectors of the stock market are expected to be affected equally, with mega-cap technology and internet companies potentially faring better in a slowing economy.
Due to market volatility and uncertainty, Janus Henderson advocates for diversification and sees bonds as relatively more attractive, offering potential for income and capital generation in a risk-off scenario.
As of Tuesday afternoon, all three major stock indexes were higher as fixed-income investors looking for stabilization sent 3- through 30-year Treasury yields down.