Channel 11: World Cup Distractions and Mag 7 Disappointments

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DoubleLine Portfolio Manager Ken Shinoda returns with his latest Channel 11 update, reviewing a June marked by World Cup distractions, Mag 7 disappointments and a market that quietly broadened out beneath the surface. With the Strait of Hormuz reopening and energy prices pulling back sharply, the inflationary pressure that defined the first half of the year eased – and that showed up across markets. Equal weight outperformed cap weight, industrials and semiconductors led, and even Europe caught a bid as manufacturing economies got relief from lower energy costs. The Mag 7, meanwhile, have gone essentially nowhere on the year, and Mr. Shinoda thinks a rotation from expensive chips back into the megacap stocks might be coming.

On rates, new Federal Reserve Chairman Kevin Warsh’s credible inflation-fighting message drove a flattening of the U.S. Treasury curve, with the front end repricing in hikes while the long end held steady. Mr. Shinoda thinks the chairman is likely to stay patient while his task forces do their work, leaving room for core CPI to ease and the front end to eventually rally. Inflation breakevens came in meaningfully, tracking energy prices lower, which Mr. Shinoda views as good news for risk assets. In fixed income, June was modestly positive across the board, with shorter duration and floating rate continuing to outperform. He closes noting that the easy beta money from spread tightening is behind us – it is now a bond picker’s market.

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