Tags: Mackay | equity | market | bond

Morgan Stanley's Mackay: Fed Won't Hike Rates This Year

By    |   Monday, 05 January 2015 12:26 PM

While bond yields might be headed lower this year, that doesn't mean you want to shun them and throw all your eggs into the stock-market basket, says Jonathan Mackay, senior markets strategist at Morgan Stanley Wealth Management.

"You still want bonds, even though yields are going to be lower, as an anchor to your portfolio," he told The New York Times.

"Inevitably you'll get some clients who say equities have done well, and that's all I'm going to do. Down the road the equity market is going to collapse."

Bucking the consensus forecast, Mackay believes the Federal Reserve will refrain from raising interest rates this year. When choosing their bonds, investors should seek credit exposure, not interest-rate exposure, he says.

Credit exposure entails high-yield bonds, while interest-rate exposure entails guessing what the yield on Treasurys will be.

Meanwhile, Morgan Housel, a columnist at The Motley Fool, expects the Fed to boost rates this year, but he doesn't expect stocks to collapse.

Writing in The Wall Street Journal, he cites data from Ben Carlson, a portfolio manager at the Van Andel Institute, concerning the 14 periods during which the Fed hiked rates since the S&P 500 index began 58 years ago.

Carlson found that the index rose in 12 of the 14 periods. Its average annual return for all 14 periods registered 9.6 percent, including dividends. That almost matches the 10.1 percent average annual return for the index during the entire span of 1958 to Dec. 1.

So why do stocks thrive when the Fed tightens? It's because the Fed generally lifts rates when the economy is strong, Housel explained. Economic growth averaged 4.8 percent in the second and third quarters, and many analysts anticipate an expansion of about 3 percent this year.

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While bond yields may be headed lower this year, that doesn't mean you want to shun them and throw all your eggs into the stock-market basket, says Jonathan Mackay, senior markets strategist at Morgan Stanley Wealth Management.
Mackay, equity, market, bond
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2015-26-05
Monday, 05 January 2015 12:26 PM
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