Caution signs Caution signs\images\insights\video\street-construction-cones-small.jpg January 18 2024 January 19 2024

Caution signs

A weaker economy and earnings may impact the high-yield market.

Published January 19 2024
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Video Transcript
Question: What headwinds may the high-yield market face in 2024?
Mark Durbiano: We think the overall economy in 2024 is going to be a little weaker, probably a little weaker than the consensus thinks. As we move into 2024, that period where the long and variable lags associated with Federal Reserve policy we think is just entering the zone where it's really going to have an impact on the overall economy. So we look for a softening economy as we go into 2024. There are a lot of indicators out there which are flashing kind of a caution sign. Things like the senior loan manager surveys, leading indicators, the purchasing manager indexes are all sort of flashing caution signs. So we're a little cautious on the overall economy. We think earnings will weaken into 2024. Also, from a micro standpoint, from a high-yield company issuer standpoint, we think earnings are going to come under some pressure here. In 2023, companies have pretty much lived and drove earnings by raising their overall prices. And in many times that was in light of falling volumes. And the equation of raising your prices as your volumes are falling is not a good mix for an overall earnings picture. And we think companies as they move into 2024 are not going to have quite the same ability to raise prices and they're going to have to lower prices and also suffer from some falling volumes. From a high-yield company perspective, also, interest rates are going to be a negative for high-yield issuers. High-yield issuers predominantly have fixed and some floating rate debt, and the cost of that floating rate debt has gone up pretty dramatically in 2023 and that will carry over into 2024.
Tags Fixed Income . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Past performance is no guarantee of future results.

High-yield, lower-rated securities generally entail greater market, credit/default and liquidity risks, and may be more volatile than investment grade securities.

Issued and approved by Federated Investment Management Company