Dec Mullarkey
Managing Director, Investment Strategy
and Asset Allocation


We are about 80% of the way through the S&P 500 Index earnings season as companies wrap up their results for 2023. And the big surprise is how well profit margins have held up.

By far, the biggest theme coming through in earnings updates is the enthusiasm for AI. Over a third of companies mentioned it, which is over three times the average rate from last year.

Is this just hype? Beyond the obvious demand for chips and data centers, more companies are talking about applications, and how they are AI enabling their products and services. The prospects for productivity and cost savings were also part of the updates, as well as the need for more capital expenditures and research and development.

While investors are on board with a lot of AI’s potential, we see evidence that they are still discerning. For example, shares of Apple and Alphabet dipped after they beat revenue and earnings expectations, as investors frowned on the weak sales from China. And chipmakers Intel and AMD took a hit as their sales outlook for the upcoming quarter, while strong, missed expectations.

For now, investors are rewarding the major AI players with what are viewed as high valuations. But they are also penalizing companies viewed as not converting their potential into results quickly enough.

Source: Bloomberg, Wall Street Journal, Financial Times, 2024.

Linda Kong Ting
Senior Director and Credit Analyst, Asset Management


One of the unfortunate hallmarks of the zero interest-rate policy (ZIRP) era was that fundamental analysis became optional and investors seemed to slowly become gamblers. As a result, analysis of option flows remains informative, as the gamified sentiment of the last decade has sunk into collective muscle memory despite higher rates. Call options on Chinese large cap equities and internet stocks are picking up. Bitcoin has surged, ostensibly due to the success of public ETFs but probably having no small relationship as well to the derivatives market action that enhanced retail trading implies.

On the other hand, wagers that imply expectations of 10-year Treasury yields higher than 4.4% by April are becoming more popular. Such short-term bearish stances on Treasuries are understandable in the context of this week’s higher-than-expected inflation print and the expectation of rising supply in longer tenors compared to T-bills. However, any widening that does come to fruition in intermediate to long bonds could be an interesting opportunity to hedge for the possibility that growth in high-beta AI, “Magnificent Seven” tech names and Bitcoin falters later this year.

Sources: Bloomberg, Goldman Sachs, 2024.

Andrew Kleeman
Senior Managing Director, Co-Head of Private Fixed Income


The investment grade (IG) private credit industry held its annual conference last week. Although deals are launched and circled pre-conference, post-conference is viewed as the unofficial start to the year. Both investors and issuers appear constructive and ready to do business, and we heard about a solid cross section of opportunities in the works – from corporates to structured deals like infrastructure and esoteric asset-backed securities.

Our takeaways are that 1) competition for deals should be stronger due to greater investor demand and new investors in the market, and 2) issuers are motivated by the capacity of the market to execute large deals, the desire to partner with a small number of investors and the confidentiality and flexibility (such as delayed funding) that the IG private credit market offers. We believe that overall volume should be at least as strong as 2023 – if interest rates are stable or if they even trend lower – but might be more front-ended as issuers look to get things done in advance of potential Q4 2024 election volatility. We believe there may be potential opportunities in niche sectors and in select syndicated market issues with sound relative value characteristics, as well as from firms with the credit expertise and industry relationships to effectively source bespoke transactions.

Source: Private Placement Monitor, 2024. 

John Bichajian
Managing Director, Derivatives & Quantitative Strategy


The Merrill Lynch Option Volatility Estimate (MOVE) index, the lesser-known volatility-gauging cousin of the VIX Index, was created in 1988 and measures the one-month implied volatility of U.S. Treasury yields across multiple maturities (2, 5, 10 and 30 years).

While the VIX has become less useful as a forecasting tool due to the introduction and rapid increase in popularity of very short-dated equity options, which are not included in the VIX calculation, we believe the MOVE index remains an effective indicator of sentiment in bond markets, as well as in financial markets more broadly.

The MOVE index spiked above 140 in the fall of 2023, as a hawkish U.S. Federal Reserve and budget issues in the U.S. and U.K. spooked investors, dragging risk asset prices lower. Since then, equities and credit have performed well, with the MOVE Index retreating more than 30 points, averaging 108 over the past week. While this is encouraging, volatility remains relatively high, given that it has averaged around 90 over the past decade.

Market participants may benefit by keeping an eye on the MOVE index as we move through Q1 2024 for potential signs that risk is increasing, as sharp moves higher can be associated with wider credit spreads and increased equity volatility.

Source: Intercontinental Exchange (ICE), Bloomberg, 2024.

The information may include statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. All opinions and commentary are subject to change without notice. SLC Management is not affiliated with, nor endorsing, any third parties mentioned within this article.

Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here. It is not possible to invest directly in an index.





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