1. High Yield Defaults on the Rise.

• Strategas’ Head of Fixed Income, Tom Tzitzouris, notes that while high yield (HY) defaults are on the rise, expectations are for defaults to rise even further.
• He also notes that high yield spreads are again making a move towards 300 bps, after moving decisively above this otherwise arbitrary threshold at the start of 2022.
• Unless productivity is expected to average 2.0% over the next few years, Tom believes that either the HY market is overestimating earnings growth potential or the Treasury market is underestimating inflation potential over that same period, or a little of both!

Tom Tzitzouris manages two actively managed portfolios: The Strategas Core Fixed Income Strategy and The Strategas Go Anywhere Strategy.

Source: Bloomberg and Strategas Securities, as of March 14, 2024

2. Inflation tends to come in waves.

• Strategas’ Chief Economist, Don Rissmiller’s historical analysis shows that inflation tends to come in waves.
• While the latest Consumer Price Index (CPI) release has not suggested a new wave is imminent, we do note that we are still witnessing over 40% of the components above the Fed’s 2% target.
• Further analysis by Strategas Chief Investment Strategist, Jason De Sena Trennert’s Common Man CPI, shows inflation rising faster than wages when reviewing items people must buys such as food, energy, shelter, clothing, insurance, and utilities.

Source: Macrobond and Strategas Securities, as of March 15, 2024[1]

3. U.S. Large-Cap Policy Opportunities Portfolio Rebalance Recap.

• Strategas’ Head of Policy Research, Dan Clifton, believes companies lobby the U.S. government looking for a return on their investment either through higher earnings from their desired policy changes or stopping a potential negative event.
• Total spending on lobbying continued to grow in 2023, with a new record being hit: $4.2 billion, up 2.7 percent over 2022 or +4.2% for the S&P 500.
• Strategas Asset Management’s U.S. Large-Cap Policy Opportunities Portfolio provides investors with a U.S. large-cap portfolio investing in companies which have the greatest lobbying intensity within Dan’s proprietary model.
• Of note in the analysis of the underlying data during the most recent rebalance, was an increase in companies lobbying on artificial intelligence to go along with continued over weights in industrial and health care companies.

Source: Strategas Securities, as of March 1, 2024

For additional information on Strategas Asset Management or our other investment solutions please visit our website: https://www.strategasasset.com/ or reach out to Patrick Rista, prista@strategasasset.com / (646) 292-7984 or Jonathan Matta, jmatta@strategasasset.com / (216) 373-4145.