To guide the future of the stock market and economy, experts like Carl Kaufman and Nal Farhi from Osterweis Capital Management analyze financial data with the precision of accountants, focusing on debt and dividends.
According to Morningstar Direct, their funds, the Osterweis Strategic Income Fund (OSTIX) and Osterweis Growth & Income Fund (OSTVX), have significantly outperformed their peers and benchmarks in recent years.
Here are six key insights and forecasts from Kaufman and Farhi about the current market environment in the USA:
1. No immediate recession
Despite forecasts from analysts like Jeffrey Gundlach, Kaufman and Farhi do not foresee an immediate recession in the USA. They attribute this to government measures supporting growth in an election year and note that current market conditions, such as the narrow spread between high-yield corporate and government debt, do not indicate a recession.
“Our base scenario is slowdown, not recession,” asserts Kaufman.
2. Building cash reserves
Given market conditions that could lead to future downturns, Kaufman’s funds maintain high levels of cash reserves. “We’re in the last three innings of the high-yield bond rally,” cautioned Kaufman, suggesting that preparing for a market downturn is prudent given the current low yields on riskier debt.
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3. Trump’s victory and its impact on the US market?
4. Focus on lower-quality bonds for better returns
Kaufman identifies opportunities in bonds rated “BB” or “B” which offer higher yields compared to bonds rated “A” despite similar or better credit metrics. His fund holds debt from companies like KeHE Distributors and Banijay Group, known for stable financials and growth potential.
5. Invest in companies reinvesting free cash flows
Kaufman and Farhi prefer companies reinvesting profits into growth rather than excessive stock buybacks or dividends. For instance, they favor Airbus due to its long-term investments in fuel-efficient technologies over competitors like Boeing.
