July 18, 2019
Remy Blaire: Welcome to Asset TV. This is your Midyear Outlook Masterclass, the first half of 2019 saw a reversal from the downtrends at the end of last year. At the midway point of the year Global growth remains unsynchronized and dovish monetary policy has sued, recession fears. I'm joined by Rajeev Sharma, Director of Fixed Income and Portfolio Manager at Foresters Financial, and Chris Dillon Vice President of T. Rowe Price Group, and T. Rowe Price associates. Chris is also an Investment Specialist in the Multi-Asset Division.
Remy Blaire: Gentlemen, thank you so much for joining me today.
Chris Dillon: Thank you.
Rajeev Sharma: Thank you.
Remy Blaire: Well, we're about to head into the second half of 2019, so far, the broader equity market here in the US has performed very well in Q 1 and Q 2, and we have got Fed expectations, but first and foremost I'd like to get your perspective on what we've seen in the first half. So, Chris, starting out with you, what are your thoughts regarding the first half?
Chris Dillon: So Remy, you've sort of touched on it already, it's the importance of the Fed, I think it has really struck the team that I work with at T.Rowe Price. You touched on the draw down that happened during the fourth quarter of last year. I think something we were looking at is the normalization efforts of the Fed from a rate policy perspective, not just taking zero interest rate policy up to effective Fed funds of 2.4%, but also drawing the balance sheet down from 4.5 trillion to less than 4 trillion.
Chris Dillon: You combine those two together, to us that felt like it caught up with equity markets from a liquidity extraction standpoint, late last summer and into the fall and there were a number of considerations that drove that draw down during the fourth quarter, but first and foremost to us was liquidity coming out of the system, the Fed leading that liquidity extraction, you throw in then the expectations for the Fed in 2019, there were some very good investment management firms thinking that the Fed would move in December 25 basis points, but would also be four times 25 basis points in 2019 when you already were seeing the drawdown of the fourth quarter, that was a big part of the moment of pause in terms of that draw down.
Chris Dillon: So fast forwarding to now in the first half of this year, it's really, if you were to look and if you can envision a chart of the probability of a Fed on pause relative to the lift that happened in the S&P 500, from Christmas Eve until April 30th, that was about 25%. If you were to look at that trend along with the increased of the probability of a Fed pause, that was palpable. I think then you get to May, May was a tough time, so it wasn't just a straight shot. We've had a great year to date as you mentioned, but May was a month of setback. We all know what happened, 40 pages of a trade agreement between China and the US suddenly disappeared and was no longer on the table, and trade policy becomes preeminent during the month of May, obviously a tough time for risk assets across the board.
Chris Dillon: But then step in the Fed again, back to the Fed, you get to June and it's not just the expectations of a Fed pause, a Fed rate cut, future's now looking at potentially four 25 basis point rate cuts by the end of 2020, again, if you were to look at the increase in the probability of that relative to what happened in the month of June, it's the importance of the Fed. Then certainly let's not downplay China - US because that was the month of May, but really the power of the Fed is the highlight I think from our perspective.
Remy Blaire: Now, Chris, you've highlighted and touched upon a lot of very important points there, and we've gotten your perspective for the first half of this year. So, moving on to you Rajeev, what do you make of what we've seen so far?
Rajeev Sharma: I agree with a lot of points that Chris made, and one of the things that we saw coming into the year, we're coming off December where the liquidity dried up, we saw investment grade corporate spreads are out, high yield spreads are out. There wasn't a lot of room, if you wanted to trade something, you couldn't get out of trades, it was very tough at that time. So, coming into January we felt that, OK, the Fed is going to continue rate hiking, and if that were to happen, I mean, where do we go from here? All the expectations were higher rates for this year. Immediately, in January we saw a complete reversal of December, by April, we had seen spreads actually tighter than they were in the beginning of the year, which was tremendous, both for investment grade and high yield.
Rajeev Sharma: We saw risk on sentiment back in the market again, everybody felt good, credit markets felt good, excess returns were positive, we had falling government bond yields and then we hit May. May was when all of a sudden, this trade war fear came back into the market, spreads start to gap out, spreads start to widen again, the problem with that, made investors very edgy at that point. Do we start seeing a reversal? Do we go back to December type of sentiment again? Or do we plow through this? And what ended up happening was, the Fed, they had their FLMC meeting in June and really propelled the market at that point, back onto lower government bond yields, that really was the catalyst. Valuations, they helped, but the catalyst really was central banks around the world bringing rates down.
Rajeev Sharma: So again, you're in this environment lower for longer, and it's really supported the credit markets. We see spreads tighter in investment grade, we see spreads tighter in high yield. High yield was the outperformer again this year, and they did it last year, they did it again this year. We're talking about returns of over 10% in high yield, which is tremendous. Even investment grade nothing to be shy about there, if your returns are eight and a half percent, that's really remarkable from where we thought we were going to where we are now.
Rajeev Sharma: So that fear in the market that's still in the background is this trade fear, and it's really, that's going to be the key going forward I think. But up to this point, it's been tremendous.
Remy Blaire: And if we think about where we were on Christmas Eve of last year, heading into the final trading days of 2018, we all remember looking at the asset performance of most of the classes, and not having quite a wonderful holiday season. But given that we're already in the first half of this year. Chris, I want to get your takes on highlights year-to-date and what has stood out for you so far?
Chris Dillon: So you've heard positive comments from Rajeev on the fixed income side, you've heard them from me on the equity side, so stocks and bonds rally together. Happens more often historically than you would think once we took the time to highlight the point, because you tend to think one zigs and the other one zags, that was not the case from the year-to-date perspective. It's growth over value from the domestic equity perspective, that's a trend that certainly just continues from 2010 forward. So, I guess you could say not really a surprise there, but there are some other undercurrents in terms of potential points of inflection that we should pay attention to.
Chris Dillon: So one would be small caps are underperforming, transportation stocks are underperforming. Now they're both up amply, but they are under performing, and you look at an indicator like that from a historical perspective that can sometimes be a sign of trouble, which gets back to some of the uncertainty embedded within the environment. So, keeping an eye on something like that, I think from the trailing 12-month perspective, getting points of inflection in the market, trailing 12 months we're here, if you're analyzing this from the end of June, from a trailing 12-month perspective, utilities are actually your best performing sub-sector within the S&P 500, that's a defensively oriented sector.
Chris Dillon: So you think more of the same, growth, you think a lot of things, but underneath the surface there are some points of inflection that I think we need to pay attention to. I think one final thing for us in T. Rowe Price Multi-Asset, I'd say our highest conviction trade for allocation embedded within our overall asset allocation sub-construct is emerging markets. And as an asset class, we think the asset class continues to evolve in a good way. What do we mean by that, it used to be for the longest time, if someone in emerging markets sneezed, everybody got a cold. Well, now you have your Venezuela, you have your Argentina, you have your Turkey, you have trouble spots embedded within the asset class, but from the trailing 12-month perspective, looking at June 2019, trailing 12 months prior to, emerging markets as an asset class on the equity side, we're only up 1%, but a country like Brazil with an idiosyncratic positive catalyst development around pension reform, it's actually up 42%. If you get idiosyncratic behavior within that asset class, I think there's a long-term secular trend for emerging markets, not as a basket, but as a more strategic investment that we can count on.
Remy Blaire: Well, Chris, you brought up a lot of important points, the fact that the equity markets and fixed income have been in lockstep this year as they have been at the end of last year. But the most important thing, I think both of you gentlemen have touched upon this, and this is the Federal Reserve and the Powell put. So, Rajeev starting out with you, what do you expect to see from the Federal Reserve this year? Will we get any cuts?
Rajeev Sharma: It's a great question. I think the Fed right now is in an interesting situation. They've got three mandates that they're working on, inflation, unemployment, and the stability of the markets. So now these three mandates are playing in the psyche of the Fed and they're trying to figure out what to do. They've changed language in the June meeting, they put in their uncertainties of economic growth. Once they start doing that, the market perceives that a certain way.
Rajeev Sharma: The market has perceived the fact that they feel that the Fed is going to cut, right now the implied probability of a July cut is at 100%. So, the Fed is really looking to address this, they're doing it through language, they're doing it through Fedspeak. What's important right now is to understand exactly how the Fed make up is, eight out of 17 members of the Fed actually think there should be a cut by the end of the year, they voiced that. So, we need to be very careful here because we're right now at very low rates. But if this trade war continues and this talk of trade war and the headline risk that's out there, if that continues, we could see ourselves in a situation where the Fed has to cut, because of growth slowing down.
Rajeev Sharma: Our view really is that we will see a cut this year, we're expecting one in July, 25 basis points. And probably one more by the end of the year as well, maybe September. The thing now is most of the street is not talking about whether we're going to do a cut or whether we're not going to do a cut, they're talking about the magnitude of a cut. So many people in the street feel that there's a 50-basis point cut that's required in July. It's going to be very interesting because now we're hovering around this point where we could start seeing ourselves headed towards negative rates like we see in Germany. That could be a very dangerous situation to be in.
Rajeev Sharma: I know the Fed does not want us to get there, and they will probably use Fedspeak to try to keep us out of that area. But it's very important to understand that if we get to negative rates, we could be there for a very long time.
Remy Blaire: And Rajeev, I know that everyone has been paying attention to Fedspeak, of course, what Powell says and what other officials, especially what voting members of the FOMC are saying. So now that we've gotten your perspective, Chris, what do you expect to see?
Chris Dillon: So from the third, very similar comments, I think for us at least one cut before the end of the year. Wouldn't be surprised to see two, too soon with too much uncertainty, too many caveats to really put any expectations into 2020 but I'd say yeah, that's our expectation. Now in terms of a 10-year treasury yield in conjunction with at least one move from the Fed and still benign inflation data, we're hovering around 2%, I think we're thinking of a range of a 10-year treasury yield around the 2%, 225 range is how we're thinking about rates in the Fed at T. Rowe Price.
Rajeev Sharma: That's a very interesting point, I mean, a lot of people have talked about the Fed cut being more of an insurance cut, they just do the cut right now as an insurance, set yourself up for a possible rate hike in the future, it's a tricky balancing act. It's going to be very interesting to see what they do.
Remy Blaire: We know that the Federal Reserve isn't the only central bank around the globe that's being dovish right now, we got comments from ECB President, Mario Draghi, those comments were dovish, and we know the situation that the ECB is in of course, but also the BOJ or the RBA. So, if you could give me your perspective, Chris, on global central bank monetary policy and what you expect to see as we head into the second half of 2019.
Chris Dillon: It's going to sound a strange comment to open up with, but I think you can make a case that the Fed is still the Pied Piper of the central banking world at the developed world level. The white paper presented at Jackson Hole, I may have the year wrong, 2009, 2010 European economist, her name was Helene Rey, her white paper that she presented to the Jackson Hole members at that meeting was called “Dilemma Not Trilemma”. Point of her paper was because the US dollar is still the world's reserve currency, the US's central bank isn't just the US's central bank, it's the world central bank.
Chris Dillon: When you look at market behavior and you look at the trends of the Fed, and then you look at what follows behind, I get back to the Fed being a pied piper, I think that case very much exists. You mentioned Mario Draghi, but think about Mario Draghi, he was the... as Rajeev had mentioned the change in the tenor of the Fed, and it wasn't very long when Mario Draghi came right back in and even prompted a Tweet from our president, back against, so here's the currency war, the race to zero, but back to the Fed being Pied Piper. So, it's accommodated from a global monetary perspective. You talked about it, it's generous, and you think about the punchbowl of liquidity, and it felt like rate normalization efforts by the Fed, the extraction of the punchbowl from the party.
Chris Dillon: Well now it's a reverse course from the Fed perspective. ECB minus 40 basis points from a policy rate, Japan minus 10 basis points from policy rate, the United Kingdom 75 basis points from policy rate. You mentioned the central bank in Australia, they just cut rates one and a half percent down to 1.25%. Very accommodative it gets much more nuanced on the emerging market side, we have our idiosyncratic stories, we have a policy rate of 70% in Argentina, we have policy rate of 24% in Turkey, but then you get beyond that, I was just looking at on the train right up here for our discussion today, looking at communications out of the Central Bank of Mexico where their policy rate is 8.25%, and they specifically said in their communications paying very close attention to the Fed, and if the Fed delivers some type of rate cut, they will follow right behind with what the Fed does.
Chris Dillon: So accommodative, but the Fed is calling the shots here. I think that's where we are, but the punchbowl is still alive and well, which allows this party to continue to a degree.
Remy Blaire: And Rajeev, would you like to weigh in on this discussion on global monetary policy?
Rajeev Sharma: Yeah, I mean we're seeing rates very low all over the place, and it's causing assets to flow into the United States because you're actually getting some kind of yield on your investment right now. So, this happened before too, we saw a global yields very low, it kind of anchored us from going higher for a long time. Again, we're at that same situation again where we have rates overseas are low, investors foreign demand for asset classes, securitized product, any spread product has increased tremendously. Now if you look at the make-up, who's investing in the United States fixed income market? It's tremendously powered by foreign investors.
Rajeev Sharma: Now when you go to work in the morning, you get to tweet in the morning, or you get some kind of catalyst for something change in the market. But the other thing you also get is the street updating on what happened overnight where Asian buyers were in there trying to buy long corporate bond paper. That really starts to set the tone for the market, that wasn't there before. So, you're going in now into the office in the morning and starting to see all these different factors that are playing out, and you don't really have a lot of control on that.
Rajeev Sharma: The tricky part is going to be to find out when and if rates start to rise overseas, and these foreign investors start to take their money back out of the US, then we can see a problem at that point. Right now, I don't see any catalyst for that happening, so I think we stay lower globally, and stay lower in United States, you're absolute right Chris, the Fed is calling the shots and globally all the other central banks are following suit.
Chris Dillon: Some good points from Rajeev there, you mentioned negative yielding there.
Rajeev Sharma: Yep.
Chris Dillon: And we're back to a record, 13 trillion, all-time record. That was coming back, that was receding back, but we're right back [crosstalk 00:16:00]. 33 basis points minus on a 10 year German bond is where we are. You mentioned foreign buyers and them buying corporate paper, paper with spread.
Rajeev Sharma: Yep.
Chris Dillon: Well, what's interesting and you heard what T. Rowe Price said about a 10-year Treasury owed. I didn't go below two on the floor, at 225 on the top, two on the bottom. But those foreign buyers you mentioned, we had a brief discussion before they stepped into this discussion about foreign buyers being interested in US municipal paper, foreign buyers being interested in paper with spread, but buyers like China, Japan are not buying U.S treasury so much anymore. So that's something you mentioned just... consideration is to pay attention too, they're all over the place.
Remy Blaire: I think those are a lot of very helpful points for the viewers to keep in mind. Rajeev, you also touched upon the fact that the investing landscape has changed considerably in the past several years. There may be advisors out there in the viewing audience watching this. So, when it comes to the new investing landscape, we have to deal with social media and how that can change sentiment very quickly, as well as what's happening in terms of geopolitics and of course fundamentals. So, for advisors out there who are watching, what's your advice, especially given that investing clients also have access to such a wealth of information nowadays?
Rajeev Sharma: That's a great question, and there's so many factors now that are involved, it's become very difficult to navigate these waters, what ends up happening is, in this type of landscape that we are right now, as an advisor I would try to hug my benchmark as much as I can. You can't really make a great duration call on this kind of environment, because what ends up happening is you could easily get it wrong, and that could put you way back if you're looking at other funds. So, the advice here is to really take all the social media, all the information flow that's coming at you, and decide to make it a waiting on what you think is most important.
Rajeev Sharma: It's very important in this type of environment that if you pick your sectors, say within corporate bonds, you want to pick sectors that you are very comfortable with, that can withstand some of these type of trading winds. I think that you have to also keep in mind that there's a lot of supply in the market right now. So, issuers are taking advantage of where the rates are, and the bond holder is buying these bonds, they're getting involved, they're putting their money to work. What ends up happening is at some point they're going to have very low coupons, very low yields, you may not get back to per until your bond matures. So, you have to be very careful where we are right now, and I think advisors need to keep that in mind as well.
Chris Dillon: So Austria hundred-year bond?
Rajeev Sharma: Hundred-year bond. Yeah, that's correct.
Chris Dillon: Was that 1.2%?
Rajeev Sharma: 1.2%, that's unbelievable. Yeah, I mean someone is buying it.
Chris Dillon: Wasn't you though?
Rajeev Sharma: It wasn't me.
Remy Blaire: Well, that was quite a remarkable headline when it came out. But gentleman bringing the discussion back to fundamentals, I want to zoom in on what we're seeing in the US market right now. So, we know that GDP estimates for the US going forward have been paired back whether we were talking about the OECD, the IMF, even the CBO or even the regional Fed banks, but what do you expect to see in terms of a GDP, especially on the heels of US employment that missed expectations. What areas of the economy are you most concerned about right now?
Rajeev Sharma: Well, we were looking at all the economic factors, I mean, one of the most important things we have to keep in mind is the Fed says they're data dependent, recently, I feel they're more Dow dependent, but they've been data dependent for a very long time. That being said, I think unemployment obviously is one of the biggest factors you have to keep your eye on. Within unemployment, we look at wage growth, I think that's extremely important. We've got inflation numbers, we're hitting 1.6%, if we hit the core PCE at 1.6% were unchanged. If we start to see that number drop, that really cements the Fed's position in cutting rates in July, or maybe even sooner.
Rajeev Sharma: But the problem really here is that we want to look at all these factors together because there's different data points that are extremely important to the Fed, inflation, unemployment are the two biggest ones I would say. But you have to also think about housing, I mean housing has slowed down quite a bit, over the last 12 consecutive months we've seen housing numbers that had been weak and that's going to also impact the market as well. So, I think this is going to be some of our focus.
Remy Blaire: And indeed we are in a late cycle economy so we have to keep that in mind. Now, Chris, what kind of economic scenario do you expect to see?
Chris Dillon: So, we just had our mid-year market outlook, and our CIO is convened, I had the opportunity to interview our CIOs, and I think our take away was the catch word or phrase, would be “muddle through economic growth environment”, that would be for the US as well as globally speaking. The other thing US real GDP certainly got accelerant during 2018 with tax reform, S&P 500 earnings were quite robust, but extra propulsion for US GDP as well. So, I don't know that we did so much think of that as a sugar rush for 2018, that won't be sustained in 2019 but we're certainly not going to get 3%ish type real GDP. I think we're feeling more like US real GDP, 2%.
Chris Dillon: The uncertainty of trade policy between US and China has yet to take a real bite out of the economic pie, so to speak, but if we don't get some type of data so to speak, the next leg of that will take a bite. I think our, even if you do get that bite out of growth, I think we're still confident in existing fundamentals on the US economy of US real GDP around 2% for 2019 when all said and done.
Chris Dillon: I think globally speaking, China is the delta. You look at global GDP trends, it's actually China and India that are the Delta, US is in third in terms of driving that growth rate. But sustainable Chinese growth, 6% even though they're trying to transition away from the old economic model, the more of the consumption based economy, are they going to be slower growth? Yes. But can they sustain around 6%? We think so, for the foreseeable future. So, you've got that and if we think about global GDP growth, think about 3.3% is where the IMF is, you get anywhere near three that's when the global recession alarm bells start going off, we're not there. So, if you think of global GDP growth in the range just north of three US real GDP, a little bit better than that and you don't get a cataclysmic implosion in Europe, which we don't think that's our muddle through scenario.
Remy Blaire: Mm-hmm (affirmative). You've helped transition the discussion from the US economy to the global economy, and you've hinted at China. So, I do want to dig deeper and get your perspective on trade policy between the largest economy and the second largest economy.
Chris Dillon: So this requires probabilistic thinking, because I think from our perspective, anybody that says they know what's going to happen is misrepresenting themselves in the marketplace. So, I think from a probabilistic standpoint where we are right now is we are approaching the midway point of the year, three scenarios are what we'd got. So, 45% probability is we got what we're calling an uneasy truce.
Chris Dillon: I think of... Going to take a digression, but I promise I'll stay on topic. I think of Alexander the Great, back in the day, the great Greek leader as he was conquering his way through Asia, and when he died there were four leaders that took his post, and there's a statue of the four gentlemen with their arms around each other, but their other hand was each on their sword. What I mean by uneasy truce is you may get an extension of talks, the talks continue. You may get concessions on semiconductor components and parts on the [inaudible 00:23:51]front, some type of concession, not holistic agreement.
Chris Dillon: You may in turn see soybeans getting sold back to China, you may see less steel production out of China, a surface agreement. But to us, the friction between US and China, this is all about tech, this is all about artificial intelligence, this is all about the future. If it's the US trying to slow China down, having an overarching agreement that allows fair play for US companies in China to participate in that marketplace, and meanwhile have intellectual property theft, enforceable agreement, that's going to take some time. It's not going to be a near term resolution.
Chris Dillon: If those talks continue, great, so uneasy truce, truce 45%, we'll get a little more pessimistic on a 35% is you don't get détente, you don't get the uneasy truce. You have Trump the trade warrior as a Presidential candidate heading into 2020 and you've got Xi Jinping trying to look tough as the new leader for life in China. We've got a 35% probability assigned to that, that's not a good scenario from where he sits, nevertheless, we are there. The final, if I do my math correctly, there's 20% left of the probabilities that I just put out there, so the 20% is happy days.
Chris Dillon: The Treasury Secretary Mnuchin just yesterday, saying, "We've got the document, we're close. We're 90% of the way there." Now we've seen this story before, but if we get that surprise, and it's a holistic agreement that looks like something that can be ironed out and sustainable, that's the 20% happy day scenario. You've only asked me about US and China, but if you were to get that happy day scenario in a Fed rate cut, oh holy, that would be quite constructive. But that's not where we are in this conversation, but had to throw it in there since it's pretty pivotal.
Remy Blaire: Well, Chris, you gave us some powerful imagery right there, as well as a possible scenarios in terms of what we can expect. And Rajeev, of course I'd like to get your perspective on what we're seeing between US and China. So, what are your expectations?
Rajeev Sharma: I mean, this is the one fear that's in the market that's on everyone's mind, every investor is thinking, every market participant is thinking about this fear, it's been there, sometimes it goes away, it goes in the backdrop, sometimes comes back in the forefront, but it's always there and until they figure something out and like Chris was saying, if there even is an agreement, it has to be something that's tangible that people understand, that's feasible.
Rajeev Sharma: That really covers all the concerns from both parties. But what's happening here between US and China, I think that we have a president whose okay with getting tariffs in the door, and I think he's very comfortable with that. He's used that as a [inaudible 00:26:28], that I'm going to be okay with tariffs are helping.
Rajeev Sharma: The flip side of that, I mean, this is going to really start to weigh on the market quite a bit. We've seen the volatility tremendously impacted because of trade war fear. So, my feeling is that, you need something tangible, there needs to be a tangible agreement that makes the market feel happy as we say. But to be honest with you, I think that it's going to be really tough to have that, that's a very complicated issue. We talk about intellectual property, that's something that's extremely complicated, and it's going to take time.
Rajeev Sharma: I don't know if the market's willing to give that much time to this type of scenario. I think that if there is some kind of agreement that comes out really quick and both sides claim victory, which is possible, it might be a shallow victory, but both sides claim it. The market might pop once, but eventually, where's the details? How is this going to work? We would go right back down to the same situation.
Rajeev Sharma: So this is a very complicated issue and I think it's going to be a forefront issue for a long time. Now, one interesting point that Chris mentioned was that if you get the happy medium, where you get an agreement with China that's feasible, and you also get a rate cut. Now you've got President Trump with two real strong motivators into the elections. I think that he wants this to linger, get the rate cut, because if you'd resolve the situation right now, let's say he resolved it before the meeting in July or before the September meeting, the Fed might not need to cut. They might say economic expansion is there, we have nothing to worry about, the fear that economic slowdown is going to be there because of this war, this trade war, it's really weighing on the Fed, and I think Trump wants that, Trump wants that cut.
Rajeev Sharma: So these could be two very strong political motivators for him, and I think we need to keep an eye on that as well.
Chris Dillon: That last point that Rajeev said about the timing, think of the election, think about the maximum points, but the balancing act that's interesting is you think of the maximum benefit for your reelection campaign, but the next leg of what happens next is absolutely going to take a bite-
Rajeev Sharma: That's right, yes.
Chris Dillon: -the global economy, but very good, absolutely agree with you on that it's all about the timing.
Remy Blaire: And we all know that depending on whether there's optimism or pessimism surrounding a potential trade deal or a move from the Fed reserve, that can always sway sentiment. Although we won't get into politics right here, we know we're heading into an election year and we'll be hearing all the candidates’ debate each other in the upcoming debates. But before I move away from you, Rajeev, can you tell me about the impact of tariffs on investment grade as well as high yield in your field?
Rajeev Sharma: Absolutely. The investment grade market and the high yield market are very much impacted by tariffs. So, what's happening here is a couple of nuances of this trade war, and the tariffs that are coming in. So, you're bringing down margins because of tariffs, and also labor unit cost right there is bringing you down as well. This is really impacting bottom line, and you're going to see a lot of balance sheets start to get stretched.
Rajeev Sharma: If the ultimate goal is to bring businesses back to the US, then you've got these US corporations that are going to have to come out and build factories. That's going to stretch the balance sheets again and balance sheets right now we have all high time leverage, right now it's really, really weighing on the balance sheets. We've had more leverage in the market now than we ever did before. What ends up happening is you start constructing factories, CapEx goes up, how are you going to pay for it? You come to the market, you issue bonds. So again, we are flooding the market with corporate debt, and it's the scenario we talked about earlier, you have low coupons, you're not getting a lot of yield on your investment, and somewhere it's going to break.
Rajeev Sharma: So right now I think high grade has that issue, where you could see some of the rating agencies start to downgrade, if they start seeing leverage creep up, if they start seeing CapEx go up, and how are these companies going to fund these initiatives? You could see ratings start to get impacted, you could see downgrades. That's never good for a scenario for the market in fixed income.
Rajeev Sharma: For high yield, you could start seeing defaults start to creep up. I mean, high yield companies are generally US-centric, they're very impacted by energy and this trade war continues, energy is a sector that gets impacted by this. You could start seeing defaults, if you start seeing a default in the high yield market, this could be quite systemic. We've also seen in investment grade, A rated companies willing to fall down to triple B very easily. So that's a big risk.
Rajeev Sharma: Triple B rated companies for the most part is managing this risk right now, they're keeping their leverage where it is, where they can feel comfortable. I know triple B's are a big part of the market, they're almost 50% of the market, but the triple B's today, I mean they don't want to play that game of getting to triple B minus negative outlook. They want to remain as triple B as possible and function comfortably there. If they have to start building factories, industrials have to start building factories in the US, they are going to have to come to the markets, they're going to have to take on more debt, and this could cause a very big scenario when you have 50% of the market in triple Bs right now.
Remy Blaire: Well, before we move away from the global economy and fundamentals. Since you did both mentioned volatility, I do want to mention that not all volatility is bad. So, could you tell me how you're factoring in the new reality into your overall outlook, gentlemen?
Chris Dillon: So I would say in T. Rowe Price multi-asset strategies, we are generally neutral between stocks and bonds. Actually, moderately underweight from a market weight perspective to stocks. But I'm talking being a 60/40 split in a global balanced portfolio. It's pretty 58, 59% there. But I would say in terms of where we're oriented to, from a Beta perspective, we're still overweight equities modestly. But let me get to answering your question, so one is neutral between stocks and bonds, making sure we've got some extra cash in the allocation to take advantage of opportunities. And I think what's also interesting at looking at the very bottom up level, in terms of the fund to funds that comprise the multi-asset strategies at T. Rowe Price is what the equity analysts at T. Rowe Price are doing from their research activities right now, I'm seeing much more work on a trading range for a stock.
Chris Dillon: You'd expect air pockets, expect like the month of May when trade policy breaks up, and the whole semiconductor space falls out of whack, understand your valuation, have your buy list ready, have your sell list ready, but you're going to have those chops with uncertain trade policy, semiconductors will be part of that. Certainly, when the conversation extended beyond China and then extended into Mexico, that was not a great couple of weeks for the automobile sector.
Chris Dillon: Again, I'm looking at T. Rowe Price equity analysts looking at ranges for the stocks, what to expect, where to sell, where to buy, because we're in this choppy range and the VIX today we're in the range of 16% is where it was hovering during the month of June. That doesn't really tell the story, I think the story is more about the 10-year treasury on around 2% so let's get the VIX out of her head, let's look at where rates are, 13 trillion of negative yielding debt and sure, maybe you'll get a VIX spike along with that.
Chris Dillon: But again, I think against that backdrop, opportunistic stock selection matters, we're neutral between stocks and bonds and we take a strategic approach, but we also have a tactical overlay. So, I'd say very recently our biggest move was we were underweight stocks heading into the Christmas Eve scenario that we opened up this conversation with, right after that we're looking at 2,350 points in the S&P 500 US economy, probably not headed for recession. US probably headed for a muddle through scenario, and we waited into that and got overweight stocks but that didn't last long, we've had that sugar burst afterward where it's again 25% up until April 30th.
Chris Dillon: So I think it's a tactical overlay on top of a strategic allocation, making sure you've got dry powder and stock selection is back.
Remy Blaire: And now that we've gotten your perspective, Chris, what about yours, Rajeev?
Rajeev Sharma: That's a great question. I mean, I think right now that you do find value in volatility, and there are certain sectors that can be extremely attractive. We saw in May as Chris has mentioned, there was a big selloff in fixed income. We saw spread product widen out across the board, across all sectors. We've managed our portfolio is very actively, what we've ended up doing is taking advantage of that spread widening. We've taken a lot of our credit risks in short duration, and extended on sectors and names that we feel very comfortable with intermediate too long.
Rajeev Sharma: What ends up happening here is you're adding a duration discipline to your investment process. I think in this market that's extremely important. So specifically speaking, there are certain sectors within the corporate bond market that are insulated to trade wars, that also wind out in May, just along with everything else.
Rajeev Sharma: So those sectors are reads, financials, utilities, telecom, these are great sectors to play, you can extend the duration, that's exactly what we've done. Other sectors that are not insulated, that get whipsawed around with the volatility of the market. These are the energy, mails and mining, autos, industrials, these sectors are very vulnerable to any headline on trade. So, you want to keep short duration on that, so we've kept in our duration discipline there with short duration on those sectors, and we've extended out in sectors that we feel comfortable with, and I think any dislocation we feel that comes in the market, we will try to take advantage of that.
Remy Blaire: Well, Rajeev, I think it's a very important time to be keeping those duration risks in mind as we head into the second half. Now, looking ahead, Chris you did mention Jackson Hole, Wyoming, it's the time of your when people gather in the beautiful area of Jackson Hole. And when we think about past meetings with Bernanke or Yellen and we might think of the imagery of the mountains behind all of the attendees. But by the time we reached Jackson Hole in 2019, what do you expect to see in terms of the investing landscape?
Chris Dillon: So I think besides the industry in landscaping and things we've talked about. I think one thing we've spent time on holistically, is the concept of secular risk. And so, from a secular risk standpoint, there's been much conversation in the investment management industry about the rise of big tech in the US, the tech platform in companies and things in tech disruption. I think you hear that and everybody's having the same conversation, I think it was late last fall, one of our CIOs, David Giroux, he had his team take that conversation a step further.
Chris Dillon: Let's acknowledge the rapid advancement of technology, but let's also look at its disruptive effects, and if a consumer is pivoting towards a preference for organic products because of the rise of the platforms and it's a Google search right over to Amazon and they can get their organic produce delivered right to their door in a pretty short time frame. What type of impact does that have on a company like Kraft Heinz, that is not so exposed to the organics and maybe not has been so ambitious in reinvesting in its brand and you think of Maxwell House Coffee, you think of Kraft Mac and Cheese, and you think of a stock that's really had a tough time, that's the stock disrupted, and we'll see what their next move is, because that's one part of the story.
Chris Dillon: You also think about the rise of the cloud. You think about Microsoft, how it's reinvented itself in the past five years becoming a powerful player in the cloud. Then you think about companies that are servicing mainframe computers, because we're in the early innings of the migration away from the mainframe computer to the cloud and I've got my cell phone in my pocket and I know that to get the latest software update I just need to hit that gray button, I need a Wi-Fi connection, I'm going to get the latest and greatest on my cell phone. Why am I telling that story? Telling that story, so it's take that story and like put it on steroids and that's an S&P 500 corporation's mainframe computer that's now in the cloud. This is transformational activity.
Chris Dillon: Those that are serving the mainframes and they have an inordinate amount of revenue dependency on those mainframe computers. So, IBM part of their conversation, they acquired Red Hat late last year. So, a disruptive company in terms of the cloud? Yes. A reaction in terms of the purchase of Red Hat? Sure. You take a look at Netflix, cheap funding and building a power house in terms of disintermediation of media from the television perspective, you look at the five-year trajectory of a traditional media stock like Viacom, and if you were to plot those two together, one's going up and the other one's not. Just secular risk, the disrupted.
Chris Dillon: But I think what's also the disrupted, and it was our estimation that about 31% of the S&P 500 are getting disrupted because of this environment of rapid technological advancement and unseeding market incumbents. I think where the conversation's gotten interesting this year, is that some of the disrupted are fighting back. So, Disney for example, they're putting out their own streaming service, it's coming this fall. I think they pull their content from Netflix, and I think you're a consumer and if you have children, you're going to have to be a Netflix consumer, you're going to be a Disney consumer. But Disney not being eaten alive by Netflix anymore and they're fighting back.
Chris Dillon: You think of Walmart, in Flipkart, in India, think of Walmart beating Amazon at its own game in terms of grocery delivery, General Mills left for dead in a consumer staples pace. I have a dog at home, and we spend money on premium pet food, it's not blue buffalo, but that's what General Mills bought. That's actually serving them quite well, and a tilt towards organic. So, it's the disrupted 31% of the market, but then it's also the disrupted fighting back. This is another dynamic in terms of the market, I didn't directly answer your question, but this is just a theme, besides a thematic thing that we're thinking about in the market that's beyond just the fundamental conversation around today's investment environment.
Remy Blaire: Well, Chris, I think you brought up a lot of important points and if we look at M&A action, or the latest IPOs, we see a lot of the price action as well as where a lot of the interests are, you mentioned Kraft Heinz and they are trying to get into the organic space by acquiring a lot of the granola brands that have been around for decades. And when it comes to technology, whether it's the cloud or mainframe computers, or even technology as a broader sector, we're seeing a lot of the large caps acquiring than to get into the game. So, I think you highlighted a lot of very important trends there.
Remy Blaire: Rajeev, I know that we're in a late cycle economy, and we're all aware of the aging bull market. So, what do you think is on the horizon when it comes to the credit cycle?
Rajeev Sharma: The credit cycle is very late, it's very advanced and nobody thought we'd be here for this long, and we continue to be in this part of the cycle. So, what typically characterizes this part of the cycle is M&A stretched balance sheets taking on more leverage, you start seeing companies do more shareholder friendly activity and we've seen all these things.
Rajeev Sharma: Interestingly enough, we continued to see new issuance out of these leverages metrics are getting stretched again, I mean further. But what I do like about corporations and bond issuers at this time, they're not doing a lot of this stuff that they would do at this stage in the cycle, they are doing M&A, they are doing bond deals, but what they're doing nicely is they're extending out their debt maturities, so they're taking up a higher coupon debt, they're taking advantage of low rates right now. They're coming into market, picking up really, really cheap funding, almost free money, it's like a money grab right now. They come in there and instead of having a five-year bond, they're extending it out 30 years. They're really manipulating their debt maturity schedule very nicely actually.
Rajeev Sharma: So it makes the bond holder feel a little more comfortable that these companies are doing the right thing, they're coming to market. The ones that are coming to market for M&A, are the ones that are coming to market for shareholder friendly activity are your single A rated or higher names, these are very high-quality names. They know that pension accounts, life insurance accounts, they need paper. So, they'll just keep coming to market and offering very little concessions.
Rajeev Sharma: Most bond deals right now; most new issue deals are three to four times oversubscribed. So, at this stage of the credit cycle, we're seeing metrics are stretched, we are seeing some nice debt maturity distribution for these bond issuers. But the eyes again, are on the rating agencies, if they start feeling that they don't feel comfortable at this stage in the cycle, that all of these deals are getting done and metrics are being stretched, you could start seeing downgrades, and I would not be surprised to see the triple B universe start to expand even further than 50% of the market right now.
Rajeev Sharma: Single A rated companies are not really worried about losing a single A credit rating, triple A rated companies, I mean, they're not even that many anymore, it's nothing to even speak of. So, there's no more that feeling that let's be high quality, now the feeling is let's be as efficient as possible. I think we're going to see that at this point in their credit cycle. We should start seeing a little bit of a breakdown too. I mean, if you see high yield, they're also in a very late stage in the market, in the cycle, and I think you've seen last year they weren't taking on a lot of debt. High yield issuance last year was very muted, and that was a strong technical for the high yield market.
Rajeev Sharma: This year, however you see more high yield debt starting to come out, you see covenant-lite start to come out, where covenants are not strong anymore on these deals. So eventually when this cycle changes and things break down, you're going to see certain sectors get more impacted than others, but there will be a tremendous impact.
Remy Blaire: Well, Rajeev, I think you gave us a great overview of what you're seeing in that space. Now, Chris in terms of asset allocation, can you tell us what's going on and is it not a time to be a hero?
Chris Dillon: So you latched onto not a time to be a hero and that was the catch phrase that summarized our mid-year market outlook. I think it's an interesting catch phrase, and it's easy to say that not a time to be a hero because I think you could survey many in the industry and they would say that oftentimes. There's a lot of uncertainty always, but back to that, not a time to be a hero. I think as our CIO has convened during our mid-year market outlook, one of our CIO is Justin Thompson, he's our international equity CIO, he said something interesting.
Chris Dillon: Normally what brings the party to an end and you get to recession, and you get the hard recession, one of two things, you get a misallocation of capital, just heard comments from Rajeev, we're not there yet. It's really good debt management and if you're managing that debt, that cycle, call it the gamby credit cycle. This thing, it's late, but it can stretch. So not to get too cute with that, but you heard good comments just to reinforce the point.
Chris Dillon: So misallocation of capital, we're not there yet, and the other would be a Fed mistake. Here's the Fed, and I didn't know they threw a pass, because I want to get too cute with a sports reference, but the good quarterbacks they throw the ball to a spot before the wide receiver makes his break. Isn't that sort of what the Fed's doing here?
Rajeev Sharma: Yeah.
Chris Dillon: Tonight in the data, it's uncertainty, reach Clarita, we will address uncertainty, that is the ball is out of the quarterback's hand, receiver hasn't made his break yet. So, Fed mistake, it's a new Fed to interpret, so you're not getting either one of those. But meanwhile, against that backdrop, I could give you three scenarios that could be, we could probably assign a 30% probability too. So, one would be back to China, US, you don't get a deal and you don't get a Fed rate cut, and we're right back to where we were on Christmas Eve at 2,350 points in the S&P 500. So, that's scenario number one.
Chris Dillon: Scenario number two is you get some kind of soft deal, call it a trip to your best junk food restaurant it'll feel good for about the first 20 minutes and maybe even not 20 minutes later. I liked your description of where you could land with a soft deal. You get a soft deal and you get maybe one cut from the Fed and you could have a sideways choppy oscillating market. Then you get a fed cut, maybe you get two Fed cuts before the end of the year, and you get a tangible deal, this is S&P 500 through 3000 and something else. So those outcomes, nobody has a crystal ball for any of them, so neutral between stocks and bonds, pick your spots, make sure you've got dry powder, and we talked about the importance of the security selection underneath the hood. So, I think that's the case, not a time to be a hero, and we think it's a strong one.
Remy Blaire: And as we head into the rest of this year we'll continue to monitor what happens in terms of geopolitical risk, we'll keep an eye on earnings, but as we edge closer to Thanksgiving and Christmas, I'm sure we'll start seeing a lot of ads for the holidays, but by the end of this year, if you think that there is a theme song that you'll be singing by the end of 2019, can you think of a song or does something come to mind?
Rajeev Sharma: Well, I'd have to go back to the Fed and say Free Falling-Tom Petty, it has to be because we just seem to be going lower and lower. We cannot believe where we started the year and where we are right now, the 30-year’s trading where the five-year started the year. I mean that itself shows you how far we've come, and I don't really see a strong catalyst for us to go higher, I mean our recall for the rest of the year, for your end, is a tenure being between two and two and a quarter, just like Chris is of great course.
Rajeev Sharma: And again, I would test the high end of that range purely because say, they got a deal done, but if there's no deal, if there still a trade war in the market, you're testing the lower bound of that, you're check testing 2%. So, I think right now where we are, I think we end the year, I think corporate bonds have a really strong demand for, I think that does very well. I think spreads right now and corporate are on 125 basis points for corporates in general for the index. We've been in the range from 116 to 163 this year.
Rajeev Sharma: That's a tremendous range, but I think we test back to where we were in 2017 and 18, which is around average of 118. So, we could go tighter on spreads, and I think that's probably a good place to be. I think another good place to be right now is maybe mortgage back securities, this offers you some yield, the risk profile is pretty good on MBS, and you're trading above treasuries. I would not advocate being overweight, treasury's where we are right now, we just come very far in this market.
Rajeev Sharma: I also think that munis as we've mentioned earlier, I think munis is another great place that foreign investors are now thinking about hiding in. It's again insulated from trade wars, there's a lot of demand there, the supply demand dynamic is very, very strong there, it's been there the last year or two and it's there this year as well.
Remy Blaire: What about you Chris? What do you expect to be thinking by the end of this year?
Chris Dillon: One, I'm envious of Rajeev's [inaudible 00:48:34]because I love Tom Petty, so you took it [crosstalk 00:48:38]. I wasn't going to use it anyway, so mine is going to sound pretty lame in comparison, so I'm going all the way back to 1967 in a group called the Young Rascals, and had a song, how can I be sure? And again, in this environment you can't. I think the first line of that song, and I promise I'm not going to sing it, we wouldn't have any viewers, how can I be sure in a world that's constantly changing, and that's where we are. I think laid out the scenario of how can you be sure, and if you can't, that neutral allocation in a global balanced portfolio with the flexibility to take advantage of opportunities at the sector level as well as from the stock selection perspective, is the best answer you have relative to not being able to answer, "How can I be sure?" Young rascals, 1967. I like Tom Petty better. [crosstalk 00:49:23]. You'll be disappointed, trust me.
Remy Blaire: Well I think those were some really good choices for theme songs for the end of the year. Well Chris, you highlighted active management, so can you shed light on some of the themes that are playing out in terms of the equity side.
Chris Dillon: It's exciting, because if you think about trade policy between US and China, we've talked about it in our discussion today, it's very much oriented on tech, artificial intelligence, and the future of what's going to drive national defense program, what's going to drive who are the next economic superpowers. So, when you look at, whether the headlines are positive or negative, one sector that gets caught in the middle of it are semiconductors. Semiconductors had a really tough August, September timeframe last year as trade tension began to escalate, in addition with a tough part in the cycle for semiconductors.
Chris Dillon: But I think what's been interesting to watch the teams at T. Rowe Price is looking at a sector that's having a tough performance time. There are still sub themes within the sector where you can still make money. So, case in point, Moore's law, we're all familiar with that. Computing power is going to double every year and this goes back to the 1970s, I think it's one of the founders of Intel came up with this idea to make conductors, well keep getting smaller, the wafer boards will have more of the computing power doubles, doubles, doubles. Well Moore's law hit a wall couple of years ago, there are some in the industry that think Moore's law is dead and that you can't have that anymore.
Chris Dillon: Not all of the players in the semiconductor space agree with that assessment. So, you could think of an Intel, which is an 800-pound gorilla in the semiconductor space, and I'm not going to disparage Intel and it's been shareholder value for a really long time. And again, you don't get to a 200 billion plus market cap in Intel by not doing that. But here's Intel saying, "We can't get past Moore's law." But there are some players in the semiconductor space that think they can get past Moore's law, ultra extreme, ultraviolet, and I may be hacking this description, extreme ultraviolet lithography as a way to enhance the efficiency of the wafer board would be one way to go ahead and do that and there's a specific company related to that theme.
Chris Dillon: You could also have a company that's an upstart in the chip space, that's very much in line with the next wave of what's coming in terms of 5G, and being much more nimble to the market from that perspective. I'm leaving certain names out here, but there are certain names that can take away from the 800-pound gorilla, so the sector may be under duress, but there are sub themes relative to developments that are coming, where there's still an opportunity to make money, which makes it an exciting time to be investing and to be watching T. Rowe Price equity professionals doing that navigation, even with extra uncertainty.
Chris Dillon: I think it's, we've talked about it, volatility is the opportunity so you get a hammering of semiconductors and then there's an additional sub theme underneath, it's been very interesting to watch that story.
Remy Blaire: And indeed Chris, we are seeing a shift in terms of technological advancement and how we have new companies that crop up. But now that we've gotten your perspective, Chris, I want to move on to you Rajeev, can you give us what you're seeing on the fixed income side?
Rajeev Sharma: Absolutely, I mean, active management is the theme here for us as well, I mean we've constantly been that kind of shop where we're looking at dislocations in the market, trying to find opportunity along the lines of what Chris said, we're buying bonds, so these bonds are going to be paid off hopefully, and you get your money back at the end. But the question here is if things start to widen out in certain sectors that we really like, it's an opportunity for us to buy those bonds, financial is a great example.
Rajeev Sharma: There's two things that we really want to look at when we look at the financial sector, we look at liquidity, because that's in the market and that's very important for us. When we see something that happened in December when liquidity really dried up, financials was our source if we had redemptions, we were able to sell financials, their large liquid issues. They also insulated to a large extent from all this M&A activity, because they're highly regulated and they provide more disclosure now than any other time in history. So, they have cash buffers, it makes us very comfortable to play those sectors and play them well when things widen out. They also are frequent issuers to the market. So, you know pretty much that they're going to be coming to market, they're going to be raising capital, and will be able to take advantage of that on the new deal.
Rajeev Sharma: Other sectors that I think we've been very, very keen on are REITs. I think they've done extremely well in this market. REITs have had a really, really strong year so far, they had strong year last year. It's an area that's... there are more and more names popping up as new issues, names that we have not been used to seeing in the past, so it gives an opportunity to get involved. Our biggest concern is really buying those bonds that are liquid enough, and REITs tend to be on the smaller size as far as a deal size goes. But these deals, if you're comfortable with management and that's the most important thing, comfortable where management's going, comfortable with their discipline as far as debt maturities go, comfortable with their outlook, that they're not going to go do some crazy M&A activity. On fixed income that's what you're looking for. You're looking for less shareholder friendly activity, you're looking for that debt holder to be protected.
Rajeev Sharma: So we've constantly looked for those kinds of themes in the market, duration, discipline is the big thing we've touched on. Duration is very important in this market, to play duration the right way. If you start buying long duration names that are very volatile, you're going to get burned at some point. So, we've really managed our duration very significantly in the front end of taking on some of that credit risk in the front end, but when we've gone up the curve, it's got to be names that we're comfortable with, it's got to be sectors that we're extremely comfortable with, no surprises are kind of the theme that we look for here.
Chris Dillon: And just to, a couple of things that Rajeev say where I think the fixed income professionals at T. Rowe would agree with would highly agree with things that Rajeev said. But I think the thing that strikes me is on the fixed income side and you're saying avoid the long duration when you're not sure, couldn't agree more, but when you've got some certain bad news on the equity side, spread expansion on your side of the world. And if there's a maturity date where it's disruption but you're going to get paid on a maturity date, that's fixed income. An extra spread is your friend, that's the Carey [inaudible 00:55:23].
Chris Dillon: The equity side, different conversation. So, interesting to hear those thoughts from Rajeev and T. Rowe on board with [crosstalk 00:55:30] same message.
Rajeev Sharma: That's another great point, I mean now the curve is so flat right now, that if you're out there on a 30-year bond right now, you're not getting paid to take 30-year risk. You might as well go back to a 20-year, you go buy 20-year pieces of paper and not give up too much in yield. It makes a lot of sense to shorten up on those kinds of dislocations. When things are so flat, you're really not getting paid enough to go out long on a lot of these sectors.
Remy Blaire: Gentlemen, as we wrap up today's master class regarding the midyear outlook, I think we've covered a lot of ground, so any closing thoughts before we wrap it up?
Rajeev Sharma: I think my closing thoughts really, again are on, for the fixed income side, it's really going to come down to that number one fear right now, which is the trade war. If that continues, if that persists, if there's no concrete resolution, because the market's not going to be fooled by just both sides claiming victory, there needs to be some details that have to be released and they have to understand them, how feasible they are. So that's going to really impact which direction the Fed goes. It's going to impact which direction the market goes.
Rajeev Sharma: I agree with what Chris was saying, if we have that goldilocks scenario where everything works out and you got a Fed cut and you've got the trade resolution, you would see the market really take off, you would see spreads tighten to levels we haven't seen in a very, very long time, and you would see this inching closer towards negative rates, which is a very dangerous place to be. So, there's a lot of scenarios that can play out, it really comes back down to what's going to Happen on trade policy? How deep does this go? Is the US China right now? I mean, we saw that one blip in May when it was US, Mexico and we saw things really go negative.
Rajeev Sharma: So it's important to keep that on perspective, and I think that's really going to be the focus, for the rest of the year.
Chris Dillon: I was just going to say, Rajeev mentioned it earlier in his comments, the importance of the discipline investment process in a choppy investment environment would be a final takeaway. From T. Rowe Price's prospective, but discipline investment process with a strategic orientation, but the flexibility to take advantage of opportunity. I think that would be our final thought to convey in this conversation.
Remy Blaire: And indeed, we don't have a crystal ball, but at least we have a grasp on the fundamentals as well as some of the technicals that we'll be keeping our eye on as we head into the second half of this year. So, thank you so much, gentlemen for joining me today.
Rajeev Sharma: Thank you.
Chris Dillon: Thank you.
Remy Blaire: Thank you. And thank you for watching. I was joined by Rajeev Sharma, Director of Fixed Income and Portfolio Manager at Foresters Financial, and Chris Dillon, Vice President of T. Rowe Price Group and T. Rowe Price Associates, as well as an Investment Specialist in the multi-asset division. From our studios in New York City, I'm Remy Blaire for Asset TV.
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