This year’s complex market environment lays the groundwork for actively managed strategies to potentially shine. Alex Mackey of MFS investment Management and Brett Sheely of AllianceBernstein discussed their outlooks for active bond investing this year at the Q1 2025 Fixed Income Symposium, hosted on the VettaFi platform.
Alex Mackey, CFA, co-CIO, fixed income at MFS Investment Management, kicked off the discussion with the five largest factors the firm believes will drive markets this year. These include immigration, the fiscal outlook, tariffs, regulatory policy, and energy. Mackey discussed the role that immigration plays in GDP as one example of why these factors matter so much this year.
“The idea that we are having a reversal in that vector and that immigration is going to be directionally less powerful to the upside,” is something investors should be aware of, according to Mackey. “From a labor perspective, we think that does have an impact in the near-term.”
Brett Sheely, head of ETF specialists, AllianceBernstein, further expanded on the point when talking about the role of tariffs already this year. The firm expects that for each 10% increment in tariffs, price levels will increase by 1%. “Tariffs ultimately are a tax on the end consumer, and could be inflationary in the short-term,” Sheely said.
Interest Rates and Bonds
After several consecutive interest rate cuts in 2024, investor enthusiasm and confidence in rate cuts fizzled last December. The SEC’s clearly communicated cautionary positioning, alongside potential inflationary elements, now leaves markets forecasting for two to three cuts this year. AllianceBernstein believes three rate cuts are likely, even with economic slowing.
MFS takes a much more reserved approach, with a high likelihood of one rate cut this year, and a potential for a second cut. “That’s a byproduct of the backdrop for labor — employment and wage growth seem really, really healthy,” explained Mackey. Despite healthy consumer balance sheets going into the year, the threat of higher inflation in the short-term and the trickle through effects of tariffs create a challenged backdrop.
