One of the biggest beneficiaries of the October CPI report was office REIT stocks as the sector saw double-digit gains due to the odds of further hikes diminishing, while expectations for cuts in 2024 increased. It marked the biggest gains for the sector since November 14 when the Covid-19 vaccine was announced.

One of the biggest headwinds for this group has been high levels of debt which is exacerbated by high interest rates. So, the relief rally makes sense given that lower levels of inflation would portend looser monetary policy and a decline in short and long-term rates. Many stocks in the sector have high levels of short interest which also make them more susceptible to big moves higher in the event of a positive catalyst. 

However, there remains considerable uncertainty over whether these gains will last given that the fundamental outlook remains impaired. Companies continue to reduce office space as remote and hybrid work arrangements have remained even after the pandemic. Prior to the pandemic, the office vacancy rate was at 9.4%, while it’s 13.5% currently. 

There’s little indication that this could change as demand for new office space is subdued. According to data provider VTS, the number of new searches for office space in major cities is 47% below pre-pandemic levels. 

Finsum: Office REITs have enjoyed a decent rally following the CPI report. However, the longer-term picture remains challenging with no rebound in sight for office space. 

In its 2024 investment outlook, Morgan Stanley shared why it’s bullish on fixed income. A major reason is that it expects for inflation to continue moderating. Within fixed income, the bank likes high-quality bonds and government debt from developed markets. In terms of equities, it sees less upside given that markets have already priced in a soft landing.

According to Serena Tang, Chief Global Cross-Asset Strategist at Morgan Stanley Research, “Central banks will have to get the balance correct between tightening just enough and easing quickly enough. For investors, 2024 should be all about threading the needle and looking for small openings in markets that can generate positive returns.”  

The bank recommends a more cautious approach in the first half of 2024 as there are numerous headwinds including restrictive monetary policy, a conservative earnings outlook, and slower economic growth. However, it sees rate cuts starting in June of 2024 which should provide a boost to the economic outlook in the second half of 2024 due to inflation falling to the Fed’s target.

It also expects lower levels of global growth in the US, Europe, and UK while also seeing weak Chinese growth as a risk, although it believes that the country will avoid a deflationary spiral that could have negative ripple effects for the wider region. 

Finsum: Morgan Stanley shared its 2024 outlook. Overall, it’s bullish on fixed income due to expectations that inflation will continue to fall while growth will disappoint in 2024. 

Something has shifted in the market following the softer than expected October CPI report. At one point this year, a recession in 2024 seemed like the consensus trade, especially following the failure of Silicon Valley Bank, stresses in the banking system, and fears that high rates would choke off growth. 

Now, the odds of a soft landing are rising. According to Robert Tipp, PGIM Fixed Income’s chief investment strategist, many seem to be aware of the historical context of previous soft landings. He cites 2018 and the mid-1990s as examples of rate hike cycles that didn’t result in a recession.

He believes that rising rates and tighter financial conditions are only recessionary, if economic growth is dependent on borrowing. He adds that “The excesses that would typically create a recession are simply not in existence. A lot of the expansions in the past were dependent on borrowing, but this time, it is a job growth driven organic expansion.” 

In contrast to previous borrowing-driven expansions, there is much less leverage. Financial institutions remain well-capitalized, household balance sheets are in solid standing, lending standards remain high, and there are no asset bubbles in sight. Adding to this is that the economy continues to add jobs while consumer spending remains firm on a real basis. 

Finsum: PGIM’s Robert Tipp believes that a soft landing outcome is likely. He points to the lack of leverage, historical instances, and firmness of the labor market and consumer spending as primary factors.

Building a powerful brand is necessary for financial advisors who want to differentiate themselves and boost their chance of attracting and retaining clients. Think of branding as the feeling that people get when they think of or see your name. 

Creating an effective online presence is an important element of branding. According to Maritza Lizama, the cofounder and chief marketing officer at Captiva Branding, “93% of buying decisions are influenced by what people see online. How can you improve your online presence? Start with your LinkedIn profile. Get rid of your old profile photo. Your photo needs to look like you. And it’s OK to show a little personality.”

It’s also necessary to figure out your ‘brand purpose’. This encapsulates your reasons for becoming a financial advisor that go beyond just monetary reasons. In addition to this, advisors need to develop a solid understanding of their target audience in terms of their demographics, career, pain points, motivations, constraints, and where they can be reached. 

Then, you can further refine your brand by creating complementary online content that showcases your personality. This can also mean talking about topics that are outside of the realm of finance in order to build a more authentic connection with your audience. 

Finsum: Building an effective brand is important for every financial advisor and can be invaluable in recruiting and retaining clients. Here are some tips to get started.  

Kevin Flanagan, WisdomTree’s Head of Fixed Income Strategy, and Scott Welch, the firm’s CIO of Model Portfolios, recently shared some insights on how model portfolios can be used to generate yield in the current environment. They see this as an opportune time to invest in fixed income especially given the differential between the S&P 500’s dividend yield and short and long-term rates. 

Currently, they see the Fed as wanting to remain hawkish, however the rise in long-term yields has also contributed to a tightening of monetary policy. In terms of inflation, they believe it has peaked but that the Fed is unlikely to begin cutting rates until the middle of 2024 due to ongoing tightness in the labor market. Additionally, they note that credit spreads have recently widened but nowhere near extreme levels.

Amid this environment, they recommend that investors stick to the short-end of the curve given the inverted yield curve and favor US Treasury floating rate notes which are the highest-yielding Treasuries. Within WisdomTree’s model portfolios, the firm has reduced its weight of high-yield debt while modestly boosting allocation to mortgage-backed securities.

Overall, they see fixed income as resuming its natural role - providing low-risk income and serving as a hedge against equities. 

Finsum: WisdomTree shared some insights on the current macro landscape, and how it’s positioning its model portfolio allocation to flourish in this environment.