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Eagle Asset Management

Recession fears remain premature

But expect more volatility, plus a higher U.S. risk premium.

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Recession fears remain premature

Equity markets have endured volatility, but the drawdown’s magnitude is largely consistent with corrections during non-recessionary bear markets. Small- and mid-cap growth markets have begun to recover off the lows of early April. In this environment, we emphasize a long-term focus, favoring high-quality businesses with strong balance sheets, and we seek to remain opportunistic amid market dislocations. We expect more volatility and the administration to look to shift to a pro-growth and deregulation agenda, which could help investor sentiment.

The fixed income landscape has entered phase that is more nuanced and more attractive. Growth is clearly slowing, but hard data — particularly in labor markets, consumption and corporate earnings — continues to show resilience even as soft data weakens. Core inflation likely has reached a low point, but tariff policies have renewed stagflationary risks. Meanwhile, the current fiscal and political backdrop has prompted markets to reprice the U.S. risk premium, with growing demand for higher yields to compensate for elevated deficits, rising interest costs, and political gridlock. Uncertainty around future tax and trade policies leaves Treasury markets vulnerable to volatility and shifts in investor sentiment. Against this environment, we continue to emphasize high-quality income generation, selective credit exposure, and curve positioning. With yields offering attractive entry points, we believe fixed income is once again positioned to deliver real return potential while helping to manage portfolio-level risk in a shifting macroeconomic regime.

  • The University of Michigan Consumer Sentiment Index plummeted to levels typically seen in recessionary periods, which has historically been a good time to buy stocks.

  • New tariffs add upward pressure to inflation while dampening sentiment, potentially slowing growth and firming prices. But this is a service-based economy — with $14.2 trillion in services versus $2.3 trillion in durable goods — and most jobs are concentrated in sectors untouched by tariffs. Recession fears remain premature until jobless claims rise meaningfully.

  • With debt and deficits expanding, as well as fewer foreign buyers absorbing new Treasury issuance, markets are more sensitive to inflation data and policy uncertainty.

  • We believe active management is essential: Navigating duration, sector dispersion, and rate volatility requires a disciplined, flexible approach to fixed income.

 

 

Holders and buyers of Treasury debt
With supply expected to remain at a near-historic $11.5 trillion over the next 12 months,1 private, price sensitive investors now make up the majority of Treasury debt holders

Chart showing supply expected to remain at near-historic levels, private, price-sensitive investors now make up the majority of Treasury debt holders

Source, Treasury supply: Bloomberg, U.S. Treasury, and U.S. Federal Reserve, monthly data as of 5/31/25.
Source: Treasury debt holders: Bloomberg, Financial Accounts of the United States, and U.S. Federal Reserve, quarterly data as of 3/31/25.

1 Estimated U.S. Treasury debt supply calculated as the sum of debt maturing in the next year, the fiscal year-to-date annualized budget deficit, and the U.S. Federal Reserve’s annualized rate of divestment (i.e., quantitative tightening).

2 Price-insensitive holders include foreign official holders, U.S. state and local governments, U.S.-chartered banks, foreign bank offices in the United States, bank holding companies, credit unions, and insurance companies.

3 Price-sensitive holders include households, foreign non-official holders, nonfinancial private businesses, pension funds, federal and state retirement funds, investment vehicles, and broker dealers.

4 Other holders include government-sponsored enterprises, asset-backed securities issuers, and other financial institutions.

Risk Information:

Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures

Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Many investors consider bonds to be “risk free” investment vehicles. Historically, bonds have indeed provided less volatility and less risk of loss of capital than has equity investing. However, there are many factors that may affect the risk and return profile of a fixed-income portfolio. The two most prominent factors are interest-rate movements and the creditworthiness of the bond issuer. Bonds issued by the U.S. government have significantly less risk of default than those issued by corporations and municipalities. However, the overall return on government bonds tends to be less than these other types of fixed-income securities. Investors should pay careful attention to the types of fixed-income securities that comprise their portfolio and remember that, as with all investments, there is the risk of the loss of capital.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.

Investments in mid-cap companies generally involve greater risks than investing in larger capitalization companies. These companies often have narrower commercial markets and more limited managerial and financial resources than larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of a strategy’s portfolio. Additionally, small-cap companies may have less market liquidity than larger companies.

Growth companies are expected to increase their earnings at a certain rate. When these expectations are not met, investors may punish the stocks excessively, even if earnings showed an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns. The companies engaged in the technology industry are subject to fierce competition and their products and services may be subject to rapid obsolescence. The values of these companies tend to fluctuate sharply.

Definitions

Core inflation measures generally exclude prices that are considered to be more volatile and thus less useful for tracking more durable trends inflation, including prices for food and, in many instances, fuel.

Credits are a generic term for fixed income securities such as corporate bonds, mortgage- or asset-backed securities, municipal bonds, or emerging market bonds.

Dispersion refers to the range of outcomes in different areas of a financial market or to the potential outcomes of investments based on historical volatility or returns.

A drawdown is a decline in the returns of a security or group of securities, as measured over a period from the peak of returns to their trough.

Duration incorporates a bond’s yield, coupon, final maturity, and call features into one number, expressed in years, that indicates how price-sensitive a bond or portfolio is to changes in interest rates. Bonds with higher durations carry more risk and have higher price volatility than bonds with lower durations.

Fiscal policy refers to the tax collection and spending a government uses to influence its country’s economy.

Hard data in economics refers to objective, quantifiable measurements of economic activity. Hard data is backward-looking and takes time and effort to collect and verify.

Macroeconomic refers to the branch of economics that focuses on seeking to understand the interactions between the markets, businesses, governments, and consumers that make up an entire economy.

Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.

Moody’s downgraded its credit rating of the United States from Aaa to Aa1 on May 16, 2025, changing its outlook from stable to negative. This removed the nation’s last remaining top-tier rating among the three major credit agencies. Previously Standard & Poor’s Rating Services downgraded U.S. debt in 2011. Fitch Ratings followed in 2023.

Positioning refers to assessments of whether professional investors are, on the whole, bullish or bearish on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.

Real returns reflect investment returns adjusted for taxes and/or inflation. Real returns are lower than nominal returns, which do not subtract taxes and inflation.

A risk premium is the investment return an asset is expected to yield in excess of the risk-free rate of return. Risk premiums are assigned to assets to cover the effects of external influences on asset prices, such as inflation, monetary policy, and economic or geopolitical events.

Soft data reflects the results of surveys of consumers or other participants in the economy, as well as indices focused on sentiment and expectations. Soft data tends to be forward-looking, providing indications about the direction of existing trends.

Sovereign credit refers to bonds issued by a national government to raise money for debt and interest payments, government operations, or other official spending.

Stagflation, first described after the oil shocks of the 1970s, is an economic condition that includes slow economic growth (or even declines in gross domestic product), relatively high unemployment, and inflation.

A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

About Eagle Asset Management

Eagle Asset Management provides a broad array of fundamental equity and fixed-income strategies designed to meet the long-term goals of institutional and individual investors. Eagle’s multiple independent investment teams have the autonomy to pursue investment decisions guided by their individual philosophies and strategies.

M-767627 Exp. 6/30/2026