Markets entered October on strong footing following broad gains in September, fueled by supportive monetary policy and renewed investor risk appetite. Media and technology sectors led performance on deal speculation and sustained artificial intelligence–driven demand, while telecommunications and large e-commerce names lagged under competitive pressure. The central bank’s rate cut and signals of further easing reinforced confidence, driving robust activity across credit and equity markets, including renewed issuance and major acquisitions. Although a government shutdown constrained official data releases, investor focus has shifted toward corporate capital expenditure trends among technology leaders and their impact on future growth. As the third-quarter earnings season begins, markets will look for confirmation that aggressive AI investments are translating into tangible revenue gains, while preparing for potential volatility as policy and macroeconomic forces continue to evolve.

September performance has been shaped by strength in key technology names, with Micron benefiting from robust demand for high-bandwidth memory and Alphabet advancing on solid results, AI progress, and easing antitrust concerns. Offsetting factors included pauses in Siemens Energy and Warner Bros Discovery, reflecting shifting investor focus rather than fundamental weakness. Market attention now turns to earnings and guidance from Nvidia, Broadcom, and Oracle, particularly Oracle’s landmark OpenAI partnership, set against expectations of a Federal Reserve rate cut amid mixed inflation signals and a softer labor market. Broader themes center on the role of AI in driving growth, ongoing geopolitical tensions between the US and China, and debates over trade and industry dependencies. In this environment, positioning remains diversified but tilted toward long-standing themes such as AI, clean energy, global media, and communications, with an emphasis on adaptability and execution.

August was marked by notable company-specific developments, including Warner Bros Discovery’s momentum from high-profile studio successes and a planned business split, Taiwan Semiconductor’s rising prominence amid competitor challenges, Micron Technology’s post-earnings pullback, and Qualcomm’s strategic transition toward IoT, PCs, and autos. In broader markets, technology and utilities led sector performance, while healthcare lagged. On the macro front, the newly outlined U.S. tariff regime set moderate rates, with China’s stance unresolved and other trade partners’ rates pending; markets have so far absorbed the changes, possibly due to lower-than-expected levels and delayed consumer impact. Inflation remains above the Fed’s target but relatively muted, while signs of softening employment data raise concerns about future labor market conditions. Earnings season for the S&P 500 has largely exceeded expectations, with companies noting both tariff-related uncertainties and the transformative potential of AI – posing headwinds for knowledge-based sectors but supported by domestic manufacturing tailwinds and anticipated regulatory easing. In this environment, maintaining agility and closely monitoring technological and market shifts remain essential.

Investors are facing a wave of rapid and complex macroeconomic shifts, spanning fiscal policy, climate strategy, trade negotiations, and regulatory expectations. Recent legislation has redefined the landscape for clean energy and healthcare, with the Administration emphasizing domestic manufacturing as a cornerstone for economic strength. Trade tensions are escalating with looming deadlines and potential tariff changes, though markets have reacted cautiously for now. The next phase of economic policy is expected to address regulation, while monetary policy appears to be leaning toward easing. Against this backdrop, the investment approach remains anchored in high-conviction, long-held positions with added exposure to emerging AI opportunities, maintaining a diversified and low-leverage profile.

Markets rebounded in May after two challenging months, with broad-based recoveries led by companies like Siemens Energy and TSMC, which recovered from prior declines. While a few names such as Verizon and Qualcomm underperformed, overall sentiment was buoyed by expectations that upcoming tariffs would be less severe, the likelihood of extending the 2017 tax cuts, and a general willingness to delay concerns about growing fiscal deficits. Uncertainty remains elevated, particularly due to a recent court ruling that deemed many tariffs unlawful, casting doubt over ongoing trade negotiations. Additionally, the “One Big Beautiful Bill” moving through Congress could significantly impact the renewable energy sector, especially given the high energy demands of AI. Despite these risks, equity markets have remained resilient, supported by forecasts of strong earnings growth and potential rate cuts, with the TMT sector—driven by the AI boom—accounting for a substantial share of market value, even as certain sub-sectors like media may face disruption.

April was marked by extreme market volatility, with a sharp early-month decline followed by a strong rebound. This turbulence reflected a broader sense of uncertainty, especially as investors reacted to geopolitical developments and shifting macroeconomic signals. Some sectors, particularly those linked to industrial and agricultural supply chains, held up well due to strong underlying demand. Others, especially in media and technology, were temporarily impacted by fears surrounding proposed tariffs, though many of these concerns began to ease in early May as market confidence returned.

Much of this renewed optimism stemmed from rapidly evolving trade developments, including high-profile announcements from both the UK and China. While the details of these agreements remain vague, they appear to represent a strategic shift by the U.S. administration to manage the fallout from its broad tariff proposals. The goal seems to be a restructuring of global trade relationships, particularly in sectors targeted for strategic decoupling. Amid these shifts, earnings season brought a measure of relief, with most companies reporting better-than-expected results despite providing limited forward guidance. The backdrop remains fluid, but recent market movements reflect a cautious optimism about the path forward.

The early weeks of April have been marked by significant attempts from the new Administration to restructure global trade. The focus is on addressing the country’s fiscal and trade deficits, and boosting self-sufficiency in critical sectors like pharmaceuticals, semiconductors, and AI. Key strategies include shrinking government, lowering taxes and regulations, and incentivizing manufacturing in the US. On the trade front, the Administration is shifting away from multilateral agreements, aiming for bilateral deals to promote American exports. However, this ambitious approach comes with risks such as inflation, slower growth, and trade uncertainty.

Investors are facing a macroeconomic shift with long-term implications, presenting both risks and opportunities. The portfolio is positioned to capitalize on emerging opportunities, with a focus on domestic and AI-linked holdings, without leverage and with select short positions. Volatility is expected to continue, presenting both tactical and strategic openings.

Despite dovish Fed policy comments, fears of inflation, recession, and stagflation dominated in March, leading to market declines across major indices and fixed income markets. Commodities benefitted from tariff uncertainty. US high-grade spreads widened, while issuance in both high-yield and leveraged loans saw an uptick. Although flows into high-yield funds were positive, leveraged loan funds experienced outflows. Default and distressed activity in March saw an increase, although Q1 2025 defaults remain relatively low compared to previous years.

In recent weeks, markets have been focused on the potential policy direction of the new administration, particularly regarding trade, immigration, fiscal reform, deregulation, and Department of Justice actions—each with far-reaching implications across sectors. While prior administrations often fell short in delivering on promises of growth and deficit reduction, current advances in disruptive technologies may provide a more credible foundation for achieving both. Monetary policy adds a layer of stability, with expectations for steady leadership at the Federal Reserve and potential rate cuts if inflation trends allow. In this environment, we expect 2025 to be broadly constructive, with deregulation offering potential upside for existing holdings and strong positioning for emerging themes—especially in artificial intelligence.

Markets opened the month on solid footing but lost momentum toward the end, weighed down by concerns over slowing growth and trade-related uncertainty. Equities declined, while fixed income markets posted gains. The yield curve remained relatively stable. Performance in commodities was mixed, with some prices rising and others falling. Corporate bond spreads widened modestly, and new issuance was mixed across investment-grade, high-yield, and leveraged loan markets, though several large deals stood out. Fund flows into high-yield bonds and loan markets remained positive, driven by both active managers and ETFs. Default and distressed activity continued to be muted across bonds and loans, with default rates edging slightly lower.

Markets rebounded in January following a weak close to 2024, with broad-based gains across sectors. Notable strength was seen in Siemens Energy, Meta, agriculture, and semiconductors, while Fluence, Warner Brothers, and certain energy holdings underperformed. The ongoing earnings season has seen the majority of S&P 500 companies report, with several key holdings meeting or exceeding expectations. Additional updates are expected in the coming days.

Financial markets entered 2025 on a strong footing, supported by a solid earnings season and a more measured tone from the Federal Reserve. Equity indices posted gains, and fixed income markets also delivered positive returns. US Treasury yield curve differentials remained steady, while commodities such as crude oil, gold, and copper advanced. Natural gas, however, declined.

Credit markets were active, with strong issuance in both investment-grade and high-yield segments, including significant deals from major corporates. Inflows into high-yield bonds and leveraged loans were robust, with leveraged loans seeing their highest fund flows in two years. Default and distressed activity in high-yield and leveraged loans fell to the lowest levels since late 2022, and default rates continued to ease. While banks maintain varying default projections for year-end, expectations remain relatively low.

The incoming administration’s 2025 policy agenda presents a blend of opportunities and challenges. Potential tailwinds include regulatory easing, tax cuts, and an emphasis on artificial intelligence (AI) and domestic manufacturing. However, these come alongside risks such as rising trade tensions, widening fiscal deficits, and persistent inflation. While markets may face uncertainty around these evolving policies, long-term secular trends—such as the expansion of AI, growth in U.S. LNG exports to Europe, and continued electrification driven by electric vehicles and data centers—are expected to remain intact. The Fund is well-positioned to benefit from these themes, supported by its core exposure to AI-related holdings and a defensive, value-oriented investment strategy that allows it to adapt to macroeconomic and policy shifts as needed.

Risk assets experienced heightened volatility in December, driven by the Fed’s unexpected combination of hawkish guidance and a rate cut, which fueled investor uncertainty. This was reflected in a sharp increase in the VIX and mixed performance across equities, fixed income, and commodities. Credit markets were relatively stable, with modest movements in high-yield and investment-grade bond spreads. However, leveraged loan issuance reached record highs, and fund flows were mixed—high-yield funds recorded outflows, while leveraged loan funds posted a third consecutive month of inflows. Meanwhile, default and distressed activity rose sharply, reaching the highest levels since early 2023, particularly within the leveraged loan space. Looking ahead to 2025, default rates are expected to climb further across both high-yield and leveraged loans, underscoring continued caution in credit markets.

In recent weeks, markets have been driven by speculation around the policy direction of the incoming administration, particularly in areas such as tariffs, fiscal policy, deregulation, and regulatory oversight. On the fiscal front, proposals to extend tax cuts, stimulate GDP growth, and reduce the deficit rely heavily on leveraging disruptive technologies to drive both economic expansion and government efficiency. Meanwhile, monetary policy remains a source of relative stability, with the Federal Reserve signaling a path of gradual rate cuts—contingent on inflation staying contained. Together with a pro-deregulation stance, these elements point to a supportive market backdrop for 2025, presenting opportunities to unlock value across sectors and benefit from the next wave of AI-led innovation. Although near-term volatility is likely, the broader outlook for growth and value creation remains constructive.

November delivered strong returns for investors, as concerns surrounding interest rates, corporate earnings, and the U.S. elections began to ease. Equity markets rallied sharply, posting gains across major indices. Fixed income also rebounded, with tightening high-yield spreads and strong performance from leveraged loans. Volatility declined meaningfully, reflected in a sharp drop in the VIX, while the U.S. Treasury yield curve held steady. Commodity performance was mixed: crude oil, gold, and copper saw notable declines, while natural gas prices surged. Default activity moderated, with a slight increase in loan defaults; however, default rates for high-yield bonds and leveraged loans remained at manageable levels. Investor sentiment stayed resilient, as evidenced by continued positive fund flows into high-yield and leveraged loan markets.

The remainder of 2024 is expected to be shaped by anticipation around the incoming Administration’s policy agenda, backed by a Republican-controlled Senate and House, and a conservative Supreme Court. Significant policy shifts are likely, including deregulation, fewer restrictions on mergers and acquisitions, increased domestic hydrocarbon production, and a reduced emphasis on environmental, social, and governance (ESG) priorities—particularly the social and governance pillars.

Tensions with China could intensify, and the imposition of tariffs may add to inflationary pressures, complicating the Federal Reserve’s interest rate strategy. The Administration’s position on the Paris Accord and broader clean energy initiatives remains uncertain, suggesting mixed or shifting priorities. In contrast, trade relationships with key allies may necessitate a cautious, wait-and-see approach.

This evolving policy environment could become a key driver of both market volatility and investment opportunity. Deregulation and sector-specific developments are expected to unlock value in areas such as energy, technology, and media.

October saw moderate de-risking across markets, prompted by a spike in rates following the Federal Reserve’s actions, political uncertainty ahead of the election, and anticipation of third-quarter earnings. Volatility spiked, with the VIX rising notably.

Equity markets posted modest declines, while fixed income struggled. High-yield credit spreads tightened, but total returns were negative across both investment-grade and high-yield bonds. Leveraged loans outperformed, supported by robust issuance and tighter spreads.

Commodities delivered mixed results: crude oil and gold posted gains, while copper and natural gas declined. Default activity rose slightly but remained in line with expectations; default rates in high-yield and leveraged loan markets stayed relatively low.

Investor flows showed renewed interest in high-yield bonds and leveraged loans, with positive inflows fueled by both active managers and ETF participation.

October is expected to be shaped by third-quarter earnings reports and early signals from the U.S. election cycle. However, recent macroeconomic developments—such as China’s latest policy measures and a strong U.S. jobs report—are already influencing market sentiment.

The robust jobs data has tempered expectations for additional Federal Reserve rate cuts, while China’s stimulus efforts have spurred a rally in Chinese equities and eased concerns about deflation. Geopolitical tensions in the Middle East remain a key risk, with the potential to drive oil price volatility.

At the corporate level, M&A activity in the lithium sector has helped recover prior losses, and regulatory scrutiny of major technology firms continues to intensify. Despite ongoing uncertainties, selective opportunities persist—particularly in aerospace and defense—where long-term structural winners are emerging amid accelerating technological disruption.

Markets posted positive returns in September, supported by a long-awaited U.S. interest rate cut and encouraging commentary from Federal Reserve Chair Jerome Powell. Nonetheless, macro headwinds—including escalating tensions in the Middle East, political uncertainty surrounding the upcoming U.S. election, and a domestic port strike—contributed to heightened volatility.

Fixed income markets benefited from declining yields, while commodities such as natural gas, copper, and gold delivered strong performance. Primary issuance remained solid across investment-grade and high-yield bonds, with credit spreads tightening across the board. High-yield funds experienced net inflows for the fifth straight month, whereas leveraged loan funds saw net outflows.

Default activity moderated, and leading financial institutions revised their 2024 default rate forecasts lower for both high-yield bonds and leveraged loans.

Markets are entering a seasonally volatile period as investors contend with heightened uncertainty around the upcoming U.S. presidential election and potential Federal Reserve policy shifts amid signs of an economic slowdown. Internationally, China is grappling with deflationary pressures despite projected GDP growth, which is weighing on global commodity prices. In Europe, persistently weak growth has prompted central banks to begin cutting policy rates. Germany’s auto industry faces mounting risks from high domestic costs and intensifying competition from lower-priced Chinese exports.

In the U.S., critical sectors such as housing remain constrained by a shortage of affordable supply. Additionally, lawmakers will soon need to address the growing national debt and expiring tax provisions. Despite these challenges, selective opportunities continue to emerge across sectors.

Following a choppy start, markets rebounded in August, buoyed by signals from the Federal Reserve that interest rate cuts may be on the horizon. While some indices, such as the Russell 2000, posted declines, others like the S&P 500 and NASDAQ registered gains, supported by a strong performance in fixed income markets. Commodity markets were mixed—gold and natural gas outperformed, whereas crude oil and copper experienced declines.

On the credit side, U.S. investment-grade and high-yield issuers remained active, though leveraged loan issuance dropped to a monthly low. High-yield bond funds saw net inflows, while leveraged loan funds experienced outflows. Defaults and distressed activity continued to rise, particularly within the leveraged loan space, as markets prepare for the possibility of additional defaults in the months ahead.

Looking ahead, several key developments warrant close monitoring: the Federal Reserve’s interest rate decisions in response to evolving economic data, policy direction from China, and persistent fiscal and geopolitical risks. While uncertainty remains—particularly regarding the Fed’s timing on rate adjustments—recent indicators such as jobless claims and producer price index (PPI) figures point to economic stabilization and a continued decline in inflation. In this environment, selective opportunities are emerging in sectors like technology, energy, sustainable food production, and communications. Continued market volatility is expected to present both tactical and strategic entry points through the fall.

July marked a strong start to Q3 2024, despite heightened volatility early in August. At its July meeting, the Federal Reserve held interest rates steady but is widely expected to begin cutting rates in September following signs of labor market weakness. The VIX spiked, reflecting increased investor anxiety, while the Russell 2000 outperformed major indices. Fixed income markets posted solid gains, with broad strength across JPMorgan’s bond indices.

In the U.S. Treasury market, the yield curve flattened slightly, reflecting slower economic growth. Most commodities declined during July, with the exception of gold. Corporate issuance remained robust, particularly in the investment-grade and leveraged loan markets. However, default and distressed activity accelerated, with several companies filing for Chapter 11 bankruptcy. As a result, leveraged loan default rates rose noticeably. Looking forward, default rates for both high-yield bonds and leveraged loans are expected to continue climbing through 2024 and into 2025.

As we enter the second half of 2024, several macroeconomic and market developments could prove pivotal. In recent testimony, Federal Reserve Chair Jerome Powell flagged growing concerns over a weakening labor market alongside persistent inflation—potentially setting the stage for interest rate cuts. However, the Fed’s still-large balance sheet and the backdrop of high fiscal deficits complicate the outlook for monetary policy. Investor worries around rising U.S. government debt issuance may be tempered by long-term productivity gains from artificial intelligence and the potential for pragmatic tax reforms following the election.

In Europe, recent election outcomes reflect a shift to the political left, prompting comparisons to the upcoming U.S. election. However, the U.S.’s decentralized policy structure could lead to more balanced outcomes, limiting the extent of political shifts. Meanwhile, market valuation disparities have widened sharply: the top five S&P 500 stocks are significantly more expensive than the bottom 250, raising questions about concentration risk and the true breadth of AI’s economic impact. Second-quarter earnings and forward guidance will play a critical role in shaping near-term market direction.

Markets closed out the second quarter and the first half of 2024 on strong footing. Optimism around potential rate cuts and robust gains in large-cap tech stocks drove broad market strength and reduced volatility. Both the NASDAQ and S&P 500 posted solid gains, though small-cap stocks lagged. Fixed income markets continued to perform well, supported by stable Treasury yields and a persistent yield curve inversion.

Commodities saw mixed performance: crude oil, gold, and natural gas delivered positive returns, while copper declined. Investment-grade bond issuance remained elevated, though spreads widened slightly. High-yield issuance was more modest, with spreads also ticking wider. Fund flows were generally positive, particularly into high-yield and leveraged loan ETFs. Defaults and distressed activity remained subdued, with default rates declining and risks viewed as manageable. Projections for 2024 and 2025 continue to reflect moderate levels of default activity.

Recent developments signal meaningful shifts in the global economic and political landscape. Both the Bank of Canada and the European Central Bank moved to cut interest rates ahead of the U.S. Federal Reserve, underscoring a broader economic slowdown across Western economies. In contrast, China appears to be gaining economic momentum. Despite elevated interest rates, the U.S. economy remains resilient, supported by strong job creation and encouraging consumer price index (CPI) data.

Politically, surprise election outcomes in India, Europe, and Mexico reflect growing public dissatisfaction with incumbent leadership and existing policies. On the corporate front, artificial intelligence continues to accelerate rapidly. Microsoft recently introduced AI-powered PCs, while Blackstone CEO Stephen Schwarzman compared AI’s transformative potential to the invention of electricity. Nvidia’s exceptional performance further reinforces the strategic importance of AI-driven investments as core pillars of the evolving digital economy.

May delivered a strong rebound for investors, reversing the challenges seen in April. Markets were lifted by solid corporate earnings and dovish signals from the Federal Reserve suggesting potential rate cuts. Volatility declined, and key equity indices—including the NASDAQ, S&P 500, and Russell 2000—recorded notable gains. Fixed income markets also improved, even as the U.S. Treasury yield curve remained inverted.

Commodities posted mixed results: crude oil prices fell, while gold, copper, and natural gas posted gains. Corporate issuance was robust, with increased activity across both investment-grade and high-yield markets. High-yield bond fund flows were particularly strong, and leveraged loan inflows remained healthy. While no defaults occurred during the month, distressed activity remained elevated across bonds and loans. The U.S. high-yield default rate declined, although leveraged loan defaults and distressed volumes increased. Default rate projections for 2024 remain steady and within manageable levels.

Markets remain focused on inflation data, with expectations for a rate cut driving hopes for further gains. While China’s economic growth could support higher oil prices, its weakening currency suggests the country will continue exporting deflation globally. Domestically, signs of consumer fatigue are emerging—companies like Starbucks report that retail customers are increasingly resistant to price hikes, and rent growth is beginning to plateau.

In the renewable energy sector, BloombergNEF (BNEF) reported that renewables supplied 30% of global electricity in 2023. However, China’s large export capacity and aggressively low pricing present structural challenges for global clean energy competitiveness. Investors are closely watching for President Biden’s upcoming decision on potential tariffs targeting Chinese electric vehicles (EVs), solar equipment, and batteries.

Artificial intelligence continues to advance rapidly, with many experts viewing the current phase as just the beginning of a long growth cycle. Valuations for key AI players and related sectors remain attractive, positioning them to benefit significantly through the remainder of 2024.

Markets got off to a rocky start in Q2 2024, as solid corporate earnings were not enough to sustain optimism around multiple Federal Reserve rate cuts. Volatility picked up in April—evidenced by a rise in the VIX—but eased in early May. Major equity indices posted losses, and fixed income markets weakened as well, although leveraged loans recorded gains.

The U.S. Treasury yield curve remained inverted, with little movement in short- and long-term yields. Commodities generally performed well, with gains across major indices, gold, copper, and natural gas, though WTI crude declined. U.S. investment-grade bond issuance rose in April, and high-yield bond issuance also increased, accompanied by narrowing credit spreads. Leveraged loan issuance grew as well, with spreads tightening.

In the fund flow space, high-yield bond funds experienced outflows, while leveraged loan funds attracted inflows. Default and distressed activity moderated: the U.S. high-yield bond default rate declined, and leveraged loan defaults fell to their lowest level of the year. JPMorgan, Goldman Sachs, and Morgan Stanley released varying projections for 2024 default rates across both high-yield bonds and leveraged loans, reflecting a cautiously stable outlook.

Q1 2024 ended on a strong note across global markets, supported by favorable corporate developments and renewed optimism around interest rate cuts following dovish commentary from Federal Reserve Chair Jerome Powell. Market volatility remained subdued, with the VIX closing the quarter at a multi-year low of 13. Equity markets posted solid gains, led by the NASDAQ, Russell 2000, and S&P 500. Fixed income markets also performed well across key indices, with leveraged loans and the S&P 500 outperforming within their respective asset classes.

Macroeconomic strength helped push the U.S. Treasury yield curve inversion to 42 basis points. Commodities broadly delivered positive returns, including notable gains in the S&P GSCI index, gold, copper, and WTI crude, though natural gas prices declined. Bond issuance remained healthy but came in slightly below historical averages for March. Credit spreads tightened. After five consecutive months of inflows, high-yield bond funds saw significant outflows, while leveraged loan funds continued to attract capital. Default and distressed activity eased in March, with a modest uptick in the U.S. high-yield default rate and a decline in leveraged loan distress. Default rate forecasts for 2024 remain stable, according to JPMorgan, with slightly more conservative estimates from Goldman Sachs and Morgan Stanley.

As the Q1 2024 earnings season kicks off—with Delta Airlines already reporting—investors are closely watching several key themes: the ongoing growth of generative AI and accelerated computing, the timing and scale of potential Fed rate cuts, China’s aggressive export strategy, and geopolitical tensions in Gaza and Ukraine.

While the U.S. is expected to emerge as a major beneficiary of AI innovation, questions are mounting about whether U.S. utilities and Independent Power Producers (IPPs) can support the energy demands of expanding AI data centers. Meanwhile, stickier-than-expected inflation, reflected in recent CPI data, has tempered earlier expectations of as many as six rate cuts this year—now potentially reduced to just one or two.

China’s ramped-up exports in electric vehicles, solar panels, and batteries are adding competitive pressure on nascent Western industries, raising the likelihood of new protectionist trade measures. Against this backdrop, investors are turning their attention toward value-driven opportunities in sectors such as renewable energy, agriculture, media, and financials, which are expected to show strong relative performance in the months ahead.

In February, markets sustained a “risk-on” sentiment, supported by broadly positive corporate earnings and a softening inflation trend in the latter half of the month. Volatility declined, with the VIX falling 7% and stabilizing near post-pandemic lows. Major equity indices delivered robust gains—NASDAQ, Russell 2000, and S&P 500 each advanced between 5.3% and 6.2%.

Fixed income performance was mixed, with JPMorgan indices showing varied results. In the commodities space, the S&P GSCI, gold, and WTI crude posted modest gains, while natural gas and copper experienced sharp declines. Bond markets were active, with strong issuance in both investment-grade and high-yield segments. However, high-yield bond funds saw outflows, contrasting with strength in the leveraged loan market, driven by ETF inflows.

February also marked a post-pandemic peak in distressed activity, with $6 billion in defaults significantly impacting U.S. high-yield and leveraged loan default rates. JP Morgan maintained its default projections for 2024 but slightly raised its 2025 estimates, while Goldman Sachs continues to forecast a more conservative outlook.

Looking ahead, the economic impact of artificial intelligence and the timing of potential interest rate cuts remain key drivers of market sentiment in 2024. AI continues to dominate macro discussions, as more companies integrate generative AI to boost productivity. Sector conferences underscore this trend, with one CEO remarking that much of the foundational AI work will be concentrated in the U.S.—a factor contributing to higher valuation multiples for U.S. equity benchmarks.

While expectations for rate cuts have shifted to the second half of the year, forward guidance for lower rates continues to support risk-taking behavior. However, concerns over the expanding U.S. fiscal deficit persist, with greater policy clarity expected after the fall presidential election.

On the global front, China’s increased focus on manufacturing exports—particularly in electric vehicles, lithium, and solar panels—poses competitive challenges to global players in those sectors. These macro and geopolitical dynamics are expected to shape market performance and the broader economic outlook throughout the remainder of the year.

January 2024 began with relatively firm markets, continuing the strength seen in 2023, though performance varied across asset classes. The VIX rose 15% to close at 14, still hovering near post-pandemic lows, suggesting subdued volatility. The NASDAQ and S&P 500 posted modest gains of 1.0% and 1.7%, respectively, while the Russell 2000 declined by 3.9%. A significant portion of equity losses came on the final trading day of the month, following Federal Reserve Chair Jerome Powell’s comments indicating that a March rate cut was unlikely.

Fixed income markets delivered gains, with strong performance across several JPMorgan indices. The U.S. Treasury yield curve inversion narrowed to 30 basis points, reflecting some easing of long-term economic concerns. Commodity markets were mixed: the S&P GSCI rose 3.6%, supported by broad-based strength, while natural gas and gold declined. Bond issuance was particularly robust—especially from the banking sector—and demand for high-yield and leveraged loan ETFs remained strong.

Default and distressed activity in the high-yield and leveraged loan markets began the year in line with 2023 averages, with low default rates. However, projections from Goldman Sachs suggest these rates may rise over the course of 2024.

Fourth-quarter earnings results from portfolio holdings and major industry players point to a shift in investor focus for 2024. Unlike last year, recession fears have eased, and attention has turned to the timing of potential interest rate cuts, which are expected to support asset valuations. Artificial intelligence remains a central investment theme, with continued corporate investment in cloud infrastructure and edge computing.

China’s influence remains significant, particularly in commodity markets and the electric vehicle (EV) and automotive sectors, although ongoing stress in the real estate sector continues to weigh on sentiment. The next wave of AI-related beneficiaries—such as HBM (high-bandwidth memory), edge computing, broadband, semiconductor foundries, and AI accelerators—is expected to perform well in 2024.

In addition, value-oriented sectors including renewables, agriculture, media, and financials are poised to see strong relative performance in the months ahead, offering a diverse set of opportunities across the market landscape.

2024 is shaping up to be a favorable year for high yield bonds and leveraged loans, underpinned by expectations of a soft-landing scenario, a stable default environment, and a constructive supply-demand backdrop. U.S. economic growth is forecasted at approximately 2%, with most economists anticipating the economy will avoid a recession. In this modest growth environment, companies are expected to generate sufficient free cash flow to service and repay debt, which bodes well for credit markets.

Default rates are projected at 2.75% for high yield bonds and 3.25% for leveraged loans—both in line with historical averages. Technically, declining supply, coupled with expectations for lower interest rates, is expected to support credit spreads throughout the year. The anticipated rate cuts are already being priced in, reflected in the relative “cheapness” of floating-rate leveraged loans compared to fixed-rate high yield bonds.

Opportunities for outperformance are expected in areas such as first-lien, fully secured bonds and loans, with better risk-adjusted returns emerging in the BB-rated space. Sector-wise, healthcare and energy stand out. Healthcare is poised to recover as margin pressures ease, while the energy sector is benefiting from geopolitical tensions and elevated commodity prices.

Overall, high yield bonds and leveraged loans are well-positioned for solid returns in 2024, supported by fundamental strength, technical tailwinds, and attractive relative value.

The U.S. economy continues to operate near full employment, with inflation gradually easing. In contrast, China is contending with rising interest rates and ongoing stress in its real estate sector, which could lead to deflationary pressures. Oil prices remain softer than expected despite OPEC+ efforts, weighed down by resilient U.S. supply and broader macroeconomic dynamics.

Looking ahead, economic growth is expected to slow in the U.S. and Europe, while China may recover from last year’s slowdown. In the tech space, rising demand for generative AI and a rebound in China’s smartphone market are driving up prices for memory and storage chips. At the same time, there is increasing momentum toward decarbonization within the energy and industrial chemicals sectors.

U.S. markets responded positively in November, fueled by measured comments from Federal Reserve Chair Jerome Powell and softer inflation data. Market volatility declined, and equities delivered broad-based gains across large-cap, small-cap, and tech indices. Fixed income also performed well across investment grade, high yield, and leveraged loan segments, supported by falling Treasury yields.

Commodity performance was mixed. Energy prices declined, particularly crude oil and natural gas, while industrial and precious metals such as copper and gold posted gains.

Bond issuance activity picked up significantly, with notable strength in both investment grade and high yield markets. Investor appetite remained strong, with substantial inflows into high yield and leveraged loan funds.

Default and distressed activity stayed consistent with prior-year levels. High yield and leveraged loan default rates remained moderate, and leading banks expect them to stay within a historically average range in the year ahead.

Recent data points to a noticeable cooling in the previously overheated U.S. labor market, largely influenced by the Federal Reserve’s prolonged period of high interest rates. Inflation figures suggest that consumer price growth has stalled in the near term, with core inflation moderating—potentially reducing the need for further rate hikes and opening the door to future rate cuts.

In Washington, the House passed a funding resolution to keep the government operational into next year, averting a near-term shutdown. Meanwhile, stronger-than-expected productivity data highlights the potential for continued economic growth alongside subdued inflation.

On the energy front, the International Energy Agency (IEA) forecasts an oil surplus next year, partly reflecting demand pressures such as increased adoption of electric vehicles. At the sector level, generative AI continues to be a transformative force across industries, while industrial overcapacity remains a headwind in China. Higher interest rates are weighing on capital-intensive sectors like renewable energy, and the rapid adoption of GLP-1 drugs is disrupting parts of the U.S. healthcare landscape.

In October, concerns around the upcoming Federal Reserve meeting, Treasury refinancing needs, and escalating geopolitical tensions weighed on both equity and fixed income markets. Volatility increased, and major equity indices posted declines. Fixed income also came under pressure, though leveraged loans showed relative stability. The U.S. Treasury yield curve continued to flatten, and commodity markets weakened during the month.

Early November brought a rebound in sentiment, supported by strong corporate earnings and more dovish signals from the Fed. Investment-grade bond issuance remained healthy, while high-yield activity slowed. Despite this, investor flows into high-yield and leveraged loan funds turned negative, reflecting caution amid rising credit stress.

Default and distressed activity picked up modestly, with several defaults and distressed transactions recorded. Default rates in both the high-yield bond and leveraged loan markets rose but remain within historical norms. Leading financial institutions maintain steady projections for credit conditions into the following year, though some anticipate a slight increase in default activity.