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Sustainable Investing Becoming Mainstream in Fixed Income
Sustainable investing is becoming more mainstream in fixed income—and companies that fail to acknowledge changing dynamics may potentially face financially material impacts.
- Even as crude oil prices have soared, energy bonds have lost value due to the financial consequences associated with a transition to a low carbon economy.
- Many attribute the underperformance of energy bonds due to the changing behavior of large purchasers of bonds that are increasingly considering transition risks into their investment process.
- The appetite for Environmental, Social & Governance (ESG)-linked debt continues to grow and, likewise, issuance trends are increasing to satisfy that demand. Over $400 billion of ESG-related debt was issued in the first quarter of 2021 alone.
- As large providers of capital, fixed income investors will continue to play a key role in shaping the future of sustainable investing.
- For more on our views on how ESG investing is becoming more mainstream in the fixed income markets, see this week’s Weekly Market Commentary.
Daily Insights
U.S. markets point to a mixed open after last week saw new highs in stocks and new lows in yields.
- S. stocks are quiet this morning, as all eyes are focused on the Federal Reserve (Fed) meeting later this week.
- European equities are marginally higher amid lockdown pushback in the United Kingdom (UK).
- Asian markets were mixed in quiet overnight trading with China’s market closed and Japan (Nikkei) finishing almost 0.75% higher.
All about the Fed
The big event this week is the Federal Open Market Committee (FOMC) decision on interest rates on Wednesday afternoon.
- It is widely expected they will leave rates at 0%, but what they do about the current asset purchasing program will be front and center.
- Two big questions: Have they started talking internally about tapering the $120 billion worth of assets they purchased each month? Or will they officially announce when tapering will start?
- Additionally, the dot plot will be released. This shows where various Fed members expect interest rates to be in the future and it is expected to show a median of 2023 for the first rate hike.
- Lastly, inflation will likely be a topic of discussion, but we don’t anticipate any divergence from the recent transitory Fed talk.
Technical update
Growth stock strength helped to finally push the S&P 500 to new all-time highs last week. The Nasdaq Composite and Russell 2000 are also knocking on the door of all-time highs, but the Dow lost 0.8% last week and sits nearly 2% below its high-water mark. Despite the overall positive price action, just 32 stocks in the Russell 3000 hit a 52-week high on Friday, far short of the 225 when the S&P hit its previous high on May 7.
Week ahead
This week the following economic data is slated to be released:
- Tuesday – Producer Price Index (May), retail sales (May), industrial production and capacity utilization (May), National Association of Home Builders (NAHB)(Jun), and business inventories (Apr)
- Wednesday – Federal Open Market Committee meeting, building permits and housing starts (May), export/import prices
- Thursday – Weekly initial and continuing claims, Leading Indicators (May)
LPL Research in the Media
LPL Financial Chief Market Strategist Ryan Detrick was quoted in Reuters talking about the stock market rallying to new highs and was quoted in The Street talking about inflation.
Sustainable Investing Becoming Mainstream in Fixed Income
Sustainable investing is becoming more mainstream in fixed income markets and companies that recognize that changing dynamic may be able to avoid financially material impacts. Learn more in this week’s Weekly Market Commentary.
What Does LPL Stand For?
On LPL Street View, LPL Financial Chief Market Strategist Ryan Detrick reveals what LPL Financial does and does not stand for—plus, a special announcement.
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