Crossmark's Chief Market Strategist identifies investor complacency as her primary concern. The market's collective belief that earnings will continue to support upward momentum, despite underlying risks, creates a dangerous environment where investors are unprepared for shocks.
Credit investors should look beyond direct AI companies. According to Victoria Fernandez, the massive infrastructure build-out for AI creates a significant tailwind for power and energy companies, offering a less crowded investment thesis with potentially wider spreads and strong fundamentals.
Crossmark Global Investments' analysis reveals that while excluding sectors for ethical reasons causes short-term performance deviations, long-term returns (over 1, 3, 5, and 10 years) are comparable to unscreened portfolios. Strong fundamental analysis remains the primary performance driver.
Large banks have offloaded riskier loans to private credit, which is now more accessible to retail investors. According to Crossmark's Victoria Fernandez, this concentration of risk in a less transparent market, where "cockroaches" may be hiding, is a primary systemic concern.
In a market where everyone is chasing the same high-quality corporate bonds, driving premiums up, a defensive strategy is to pivot to Treasuries. They can offer comparable yields without the inflated premium or credit risk, providing a safe haven while waiting for better entry points in credit markets.
Contrary to the consensus view, Crossmark's Victoria Fernandez is concerned about resurgent inflation. She points to recent increases in housing price reports, noting they typically lead rental price increases by about six months, signaling future pressure on a key inflation component that the Fed may be ignoring.
A credit rating is just a starting point. Crossmark's Victoria Fernandez uses an Alcoa example to show how their independent balance sheet analysis revealed the company could still service its debt, allowing them to hold a downgraded bond to maturity and avoid realizing a significant loss.