Global Perspectives: Cross-asset collaboration during market volatility

Lara Castleton: Hello and thank you for joining this episode of Global Perspectives, a Janus Henderson podcast created to share insights from our investment professionals and the implications they have for investors. I’m your host for the day, Laura Castleton.

2025 has been a volatile year so far, with the first few weeks of April alone being some of the most dramatic in recent history. The S&P 500 experienced its 14th largest down day going back to 1990, followed shortly thereafter by its third largest one day gain. At one point, the S&P was just shy of triggering a bear market. But as we record today on May 5, it’s down about 3.5% now.

Fixed income markets were not insulated from the drama, either. The 10-year Treasury yield saw its largest weekly increase since 2001, rising 50 basis points, and high yield credit spreads widened out from their 33^rd percentile to their 69^th percentile in just the first week of April. While markets are seemingly calmed down for now, investors are wondering what could be in store going forward.

To talk through the implications that these markets have for multi-asset portfolios, I’m excited to have back two Portfolio Managers on our Janus Henderson Balanced Strategy. Greg Wilensky and Jeremiah Buckley: Gentlemen, thank you both for being here.

So, as Co-Portfolio Managers, two of them on a multi-asset strategy, in extreme volatility like we’ve experienced, how did the equity and fixed income teams coordinate with one another?

Jeremiah Buckley: So, first and foremost, we communicate more often. So, we’re talking daily if not hourly depending on the on the news flow to share what we’re seeing, both from a market perspective as well as what our research teams are working on and some of the views of what the impact can be. And I think in times like this, it’s really valuable for the equity PMs to leverage the knowledge of the fixed income PMs as, as well as vice versa.

For us on the equity side, you know, we’re curious about, are they seeing strain in financial markets? What are spreads doing? Are defaults starting to pick up? You know, what is the demand for Treasuries, and what does that tell us about the overall market environment? And having that that team-based approach is super valuable in periods of volatility like this.

The other aspect is volatility gives us the opportunity to add value with asset allocation. So, we can shift the risk profile within the equity portfolio or the fixed income portfolio, but we can also shift between fixed income and equities. And so, we use that volatility to adjust that risk profile.

Castleton: What about you Greg, what do you think?

Greg Wilensky: Well, while we’re trying to form our macro opinions, and we’re looking at a lot of economic indicators, and you’ve heard probably a lot about kind of the divergence between the soft data and the hard data. So, one thing that we love from the fixed income perspective is to be able to hear from Jeremiah, as well as the entire corporate research team, what they’re hearing from individual companies, what’s going on in the industries to really bring that to life for us.

What are they seeing, especially in the current environment? How are companies reacting from a pricing perspective? Are they holding back on CapEx investment? Are they getting signals from the earnings calls or the guidance that’s coming out about what they’re doing from an employment perspective? And we try to incorporate all of that into the forming of our macroeconomic views, what we think will drive the Federal Reserve’s monetary policy decisions over the upcoming months and quarters.

Castleton: So key to have that communication between multi-asset teams, and it’s one of the more unique things about our strategy is that we sit so close to each other. You guys are just separated, not even now by a flight of stairs; you’re in the same room, almost. So, great to hear that cross collaboration in times like this is extremely helpful.

Let’s dig into each asset class separately. Greg, if I start with you, mentioning that Treasury volatility and the breakdown that we saw in that first week of April, how do you view Treasuries and the role of defensive fixed income in general going forward from here?

Wilensky: Overall, we’ve been actually pretty pleased with how Treasuries have been acting as a ballast, if you will, for riskier assets like stocks, over the long term. This is especially true when we look at the front end of the Treasury curve. And that’s something that, frankly, we’ve been expecting and we’ve incorporated that into our portfolio construction.

And if you look at what happened in April, the front end of the curve was still continuing to display that negative correlation. And I think that’s because the front end is going to be most tied to the monetary policy decisions that the Federal Reserve makes.

We still strongly believe that if there is economic weakness, particularly labor market weakness, as a result of policy uncertainty or what’s going on with tariffs, that the Federal Reserve will still be able to cut rates aggressively if necessary, especially if longer-term inflation expectations remain well anchored. On the other hand, more of that volatility or kind of unusual behavior was occurring at the longer end of the yield curve as things like … people were starting to, you know, comment about Fed independence that was coming up from Trump. Definitely not helpful to the negative correlation, but mostly impacting the long end of the yield curve.

Same thing, when people were starting to question, you know, whether foreign investors would continue either to hold or to buy Treasuries as we go forward. While there does not seem to be any truth to some of the concerns that people were selling Treasuries, at the end of the day, we still run a pretty large deficit, one that’s likely to get larger. So, we do need to have continued demand in the future.

Castleton: So that’s very interesting. The narrative in general was just blanket Treasuries, worried about their ability to diversify against equity volatility. But very clearly there’s a diverging story across the yield curve.

 Jeremiah, equities obviously very volatile as well. What have you been focusing on with Q1 earnings? And then very clearly what’s the impact that you’re seeing with tariffs and the headlines there?

Buckley: Yeah. So on tariffs, when it looked like it was becoming more of a reality that we were going to definitely see a different tariff regime than we’ve seen in the past, one of the things we did on the research side is we asked our analysts to build a framework within their models so that we could be flexible and change the assumptions and better understand what that meant for a company’s earnings, because the tariffs were obviously going to raise costs for companies.

So, in building that framework, that helped us kind of give us confidence, even though we still don’t know the absolute assumptions that we need to put in place. But building that framework and running through some scenarios helped us make decisions on what the overall earnings impact could be. From a portfolio positioning standpoint, what we’ve been focused on is making sure that we understand our exposure to goods.

So obviously, goods are going to be more directly impacted by the tariffs with the higher costs. And then obviously there’s indirect impacts to the rest of the economy. But we wanted to make sure that we were managing that exposure to goods. I think one of the positives is when we look at first-quarter earnings, we’re starting from a very healthy level. You know, the S&P 500 is expected to have 5% revenue growth and 10% EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] growth in Q1. A lot of the large caps, you know, tech companies, internet companies, did well, better than that. And what’s been impressive is they’ve shown substantial operating margin leverage. And we think, you know, a good piece of that is AI starting to show up in company financials. And so, the good news is, we’re starting from a healthy spot; the economy’s in a good place going into this transition. But we have to continue to be cognizant of that.

One of the things that makes us comfortable is we’re focused on U.S. large-cap companies, and those companies have the geographic diversity from both end markets as well as their supply chains that they can leverage this. And they’re also very important to their supply chain. And so, their ability to work with their partners and ease the impact of this over time we think puts them in a better spot than some of the smaller competitors that might not be as diversified or might not be as large in the global supply chain framework.

Castleton: Right. So, it sounds like it’s so far been okay, relatively insulated. I would expect maybe more uncertainty coming through in the next quarter earnings results. But again, like you said, maybe pivoting to some more of the insulated areas of the large cap universe, more service-oriented, is a good way to navigate this volatility.

Greg, if we go back to fixed income, obviously you manage a flexible fixed income strategy. So, not just allocated to the sovereign U.S. Treasury market. Like we just mentioned, in this recent volatility, how do you think about the relative option of fixed income going forward in different sectors?

Wilensky: Yeah. So, the volatility and the movement has made things look relatively more attractive. And volatility in general is something that’s good as an active manager. You noted earlier in the introduction, if we take high yield spreads … let’s start at the overall value proposition: High yield spreads kind of went from a tight of around 250 basis points, got out as wide as 450 basis points, and now we’re back around 350 basis points above Treasury yields.

To put that kind of in a historical perspective, when we were at 250, that was probably the best, the tightest decile we’ve seen over the last 10 years. When we got out to 450, that was, you know, probably into the 70^th or 80^th percentile. And now we’re closer to, let’s say, median levels or maybe even a little wider than median levels. And that relative spread move has been somewhat comparable whether you’re looking at investment-grade corporate bonds or securitized assets as well. So, the fact that spreads are now just at a much wider spot than they were in February is something that’s a positive. It generates more carry; it provides more protection against uncertainty.

And the fact is, as Jeremiah noted, we’re actually still at the moment starting from a position of strength in the economy, which is good given the level of uncertainty that we’re dealing now. So, the fact that we’ve got starting fundamentals, good wider spreads, that is certainly a positive from our perspective, looking at fixed income assets. From a relative value perspective, when we work across the different asset classes, we’ve seen volatility there and relative movements. When we were coming into the year, we thought that AAA CLO spreads looked attractive relative to investment grade corporate for a while there. What happened was, corporate spreads were gapped out more quickly than CLO spreads. So, when we were looking to kind of lean in at that point and add a little bit of risk as spreads were generally wider, and we thought at that point the market had maybe overreacted to what was going on, our buys we focused on the corporate side at that point, even though, as I think we’ve spoken in the past, we’ve generally looked at securitized credit as being relatively more attractive than corporate bonds.

We’re also seeing movement at the individual issuer level as you look at, you know, who may be more, kind of similar to Jeremiah’s point, tariff exposed. Where are spreads widening, or were spreads remaining relatively stable? So, this volatility is something that is good from an active manager’s perspective.

Castleton: And all of which is, it seems like you blink, you might miss it. So, it’s good to be on top of these markets on a day-by-day basis.

Jeremiah, same question to you. You already mentioned a few of the opportunities that you saw amidst this volatility, but where are you really finding some ability to capture upside potential?

Buckley: Yeah. So, I think with the recent market recovery and what appears, at least for now, is a de-escalation in the trade negotiations, I think the opportunities in the market are less kind of macro-driven and a bit more focused on secular growth drivers that we had been focused on, you know, in the previous years.

And so, I still think cyclicals from a long-term standpoint are more attractive than defensives. We still have seen defensives have a very strong start to the year, despite having some pressure on their earnings as well. And so, we think the relative value is less attractive there. But there are some cyclical areas of the economy that we still have seen pullbacks in that we find quite attractive, with long-term secular growth prospects.

And so, a couple of examples of that would be the AI infrastructure. I think one of the highlights of first-quarter earnings was strength across the board in the infrastructure providers, as well as commentary around demand for AI continues to be very robust. And so, we continue to find great opportunities there.

I think another area, given the concerns about the macroeconomic outlook, has been travel and discretionary spending within that kind of consumer services bucket. We continue to believe that over the long term, experiences will be in higher demand than goods, especially if tariffs raise the price of goods, and that consumers want to continue to travel and see the world. And so, we find a number of different opportunities in the travel-oriented … not only the companies that are providing those travel services, but also, you know, companies exposed through their credit card business, we continue to find attractive.

And then the last piece is we’re still finding opportunities in capital markets. So, you know, investment banking businesses, for the leading players that’s actually been in a recession the last couple of years. And so, investment banking levels, from both an underwriting standpoint as well as an M&A advisory standpoint, are well below historical norms as a percentage of GDP or, looking back at, you know, 10-year averages. And so, we think as we get a little bit more certainty in the market stability and interest rates, I think there’s a lot of pent-up demand for those services.

Castleton: Okay. So, thank you both. There’s been a lot of volatility this year that’s allowed you to capture both intra-asset opportunities within equities alone and fixed income. But then you’ve also been closely collaborating as teams throughout the year to assess the multi-asset view of the portfolios today. As it stands today, still pretty confident on having a solid equity allocation versus fixed income. But what would be the number-one thing that you’ll be monitoring going forward as you think about the relative asset class opportunities?

Wilensky: Well, I love to say, when you say the number one thing, like it should be so easy, right? I think, you know, it’s always a mosaic of various things. I mean, right now, to me, looking at what’s going on from a government policy perspective, primarily around the trade side, it’s not only about coming to agreements, but the speed with which we come to those agreements is important. It’s great that, thankfully, we are starting from a good starting point, which gives us a little bit of ability to absorb this.

But as time goes on, or if it turns out we cannot come to reasonable agreements with trading partners, that’s something that will impact our outlook and our views on the relative asset classes. Certainly, thinking from a fixed income perspective, two things jump out to me. One is this idea, I said before, are long-term inflation expectations remaining well anchored. What we’ve had happen so far is short-term inflation expectations, especially on the goods side, as Jeremiah was talking about, those have gone up. But longer-term inflation expectations have remained well behaved. With that view, that the weakening of the economy that would accompany a full-blown trade war will actually push growth down and push inflation down more than kind of secondary impacts of tariffs.

So, we’ll continue to look at those more market-based expectations there. And we’re still very focused on what’s going on in the labor market. Because we still believe that that will be kind of the main trigger for the Federal Reserve from a monetary policy perspective. And at this point, it’s a little bit of, we’re probably only going to get a cut out of the Federal Reserve for, if you will, bad news reasons. So, we’re not necessarily hoping for cuts from the Federal Reserve, because that’s likely only to occur in the face at this point of a materially weakening in the labor market.

Buckley: I agree with Greg, I think in the short term for the equity market, it’s going to be about a positive trade outcome. Whether that be lower tariffs globally or more market access for U.S. companies or more resilient supply chains, I think those are all factors that we need to continue to watch. And that will be kind of the most impactful in the short term because it impacts company’s earnings and their outlook.

I also agree, obviously the labor market drives consumer spending, which we know is the biggest driver of the economy. And for me, the best leading indicator for the labor market is looking at corporate margins, operating margins. And when operating margins are rising, there’s so little pressure on companies to reduce labor force. But when there is pressure, which something like a tariff or a supply shock can cause, that can drive, you know, labor reductions. And so that’s what I’m focused on. And as I mentioned before, first-quarter operating margins were very healthy in the U.S. economy. So, in that respect, we’re still hopeful that the labor market remains strong.

And I would just remind you, over the long term, we think the two most important variables that drive long-term value in both the economy as well as corporate earnings is innovation as well as productivity. And often those two are highly linked. When we’re talking about technology companies and innovating there, that is what drives a lot of the productivity that we see in markets. But it’s also increasing your addressable market, adding more value back to customers, through innovation. And so that’s where we spend most of our time, because that’s where we believe, even though we see economic ups and downs, that’s what’s going to drive the long-term value and value creation for individual companies.

Castleton: Well, we’ll continue to watch the headlines and monitor these markets. In the meantime, I appreciate you both being here to walk through your process and how to approach this, especially from a multi-asset perspective.

And we hope you all enjoyed the conversation. Thank you for listening. For more insights from Janus Henderson, you can download other episodes of Global Perspectives wherever you get your podcasts or visit Janus henderson.com. I’ve been your host for the day, Laura Castleton. Thanks. See you next time.