(Washington)

Jerome Powell’s performance could not have been much better. He gave exactly what the people wanted—dovishness. In fact, if anything, he was almost comically dovish, disregarding the very strong jobs performance last month. No matter though, investors are pleased as it now looks nearly 100% likely the Fed will cut rates later this month, and seems as though they will stay on a cutting path for some time. The Fed’s shift in policy appears to affirm that they are currently considering the condition of the global economy as a major threat to the US.

FINSUM: The Fed is in a pretty easy spot if you think about it. Inflation is very low, markets want cuts, and the global economy is looking weak. Simple solution with no real downside—cut rates.

(New York)

Investors likely already know that low cost index funds tend to greatly outperform high fee actively managed funds (to the tune of 1.5% or more annually). That comes as no surprise. However, what was surprising to us is that in fixed income, the tables are greatly turned. While passive funds do have a slight edge over active ones on average (0.18% per year), in many cases high fee actively managed fixed income funds outperform passive ones. This holds true over long time periods, including ten-year horizons.

FINSUM: This is an interesting finding and one that makes intuitive sense. The bond market is vast, hard to access, and full of intricacies. That kind of environment lends itself to specialism in a way that large cap equities does not, and the performance metrics show it.

(New York)

The yield curve inversion has largely faded from headlines. Things that become the status quo often do! But in that development lays a hidden but worrying truth—the longer the yield curve is inverted, the more likely it is that there will be a recession. The inversion has been in place for over a month now and it is actually getting worse, with long-term yields continuing to drop. A yield curve inversion has proceeded every US recession in the last 50 years.

FINSUM: If the Fed proceeds with cuts, it seems like the inversion may abate. But then again, the rate cut would be an implicit admission that we are on the way to a recession.