ME cio weekly letter

All data, projections and opinions are as of the date of this report and subject to change.

Macro Strategy—Wading Through the Data: The Fed's Rate-hike Conundrum: Chief Investment Office Rebounding oil prices amid persistent Middle East tensions, together with heavy Macro Strategy Team corporate and Treasury bond issuance, have maintained some upward pressure on longer-term interest rates. Against this backdrop, however, a soft July employment report Lauren Sanfilippo Director and Senior Investment Strategist and relatively favorable inflation data over the past month have reduced the odds of the Federal Reserve (Fed) raising rates in September. The mixed data bag has created a Christopher Hyzy conundrum for the Fed. Chief Investment Officer

Meanwhile, against a backdrop of surging profits, Equity benchmarks have broadly MACRO STRATEGY  reached fresh highs, credit spreads have remained narrow, and market volatility has stayed low consistent with limited systemic risks. Artificial Intelligence (AI)-related MARKET VIEW  investment, government investment incentives, high productivity, restrained labor costs, THE TICKER TAPE  and resilient consumer spending growth have created an exceptionally strong corporate earnings environment. U.S. oil producers have also benefited from unexpectedly high MARKETS IN REVIEW  prices this year. All told, the risk-asset outlook remains constructive. Portfolio Considerations Market View—Sounding the Arsenal Alarm: Just how depleted the nation’s munitions stockpiles have become is now an open question. While estimates exist, years of We view recent volatility as a rolling underinvestment and overlapping geopolitical conflicts have exacerbated stockpiles and correction rather than the end of have now elevated rearming to a national security priority. the cycle. We favor diversified Equity exposure, with potential opportunities Higher defense spending targets and commitments globally for arms, rearmament extending beyond Growth to Value, and defense technology continue to support the momentum the aerospace and Small- and Mid-caps, Non-U.S. Equities defense sector has seen late in the summer. At the same time, and extending beyond (especially Emerging Markets), dividend- traditional armaments, commercial aviation backlogs, fleet modernization and emerging focused and thematic strategies. technologies such as drones, cybersecurity and advanced defense systems are also We favor adjusting portfolios toward driving the defense narrative with potential investment opportunities spanning both strategic durations given attractive public and private markets. elevated nominal and real yields, and see value in high-quality bonds, particularly The Ticker Tape—Top Questions Answered Directly by Our Chief Investment longer-dated municipal bonds. Officer (CIO). Consider broader portfolio diversification with potential opportunities across • What, in our view, is the largest risk in the markets right now? industrial metals, energy, and global strategies to capture themes from AI, reindustrialization, infrastructure growth and market dispersion.

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Wading Through the Data: The Fed's Rate-hike Conundrum Chief Investment Office, Macro Strategy Team Rebounding oil prices amid persistent Middle East tensions, together with heavy corporate and Treasury bond issuance, have maintained upward pressure on longer-term interest rates in recent months. Still, 10-year Treasury yields have remained at a normal level within their Investment Implications two-year range, as relatively anchored inflation and inflation expectations alongside a weak Long-term yields may remain under July employment…