US Stocks Soar for Third Consecutive Quarter
The US stock market has continued its upward trajectory, with the S&P 500 Index reaching new heights for the third quarter in a row. This remarkable performance was largely driven by a select group of mega-cap technology companies, leading to a significant outperformance of growth stocks compared to their value counterparts.
Despite this, the economy has shown signs of gradual moderation, with annualized first-quarter GDP growth revised downward to 1.4%. Inflation remains stubborn, and the labor market remains tight, tempering expectations for interest rate cuts by the Federal Reserve this year.
Global fixed-income markets have managed to eke out positive total returns, as measured by the Bloomberg Global Aggregate Bond Index hedged to US dollars. Coupon income has helped offset the impact of higher sovereign yields and wider credit spreads. However, markets are grappling with conflicting signals, including cyclical indicators pointing to a weakening global economy and slowing disinflation in some countries, leading to divergent central-bank policies.
The Hartford Balanced Income Fund has outperformed its benchmark, driven primarily by strong security selection in the equity portion of the fund. Healthcare was a standout sector, although this was partially offset by weaker performance in real estate. Sector allocation, resulting from the fund’s bottom-up stock selection process, also contributed to relative outperformance, particularly due to an overweight position in utilities.
In the fixed-income portion of the fund, security selection decisions, especially within Investment Grade Credit, aided relative outperformance. Exposure to high-yield credit contributed favorably to relative returns, although this was offset by security selection, which detracted. Positioning in emerging-markets debt and securitized sectors had a negligible impact on relative returns.
The fund’s top five equity holdings include JP Morgan Chase & Co., Pfizer, Inc., UnitedHealth Group, Inc., Johnson & Johnson, and EOG Resources, Inc. The top five fixed-income issuers are U.S. Treasury Notes, U.S. Treasury Bonds, Wells Fargo & Co., JP Morgan Chase & Co., and Morgan Stanley.
The fund remains focused on finding high-quality businesses with strong balance sheets and sustainable dividends. It continues to prioritize downside stress-test scenarios and is confident in the sustainability of dividends and long-term value of holdings in the portfolio.
In terms of sector allocation, the fund is overweight in healthcare, utilities, and consumer staples, while being underweight in financials, communication services, and industrials. Within fixed income, the fund remains underweight IG credit and overweight EMD, with an overweight allocation to high-yield credit.
Despite spreads appearing tight, they could remain in this range as yields are attractive, resulting in positive net inflows. Corporate cash flows remain healthy in sectors such as cyclicals and technology, which have benefited from strong consumer spending. Financial companies still appear healthy, and balance sheets remain heavily regulated in the banking sector for large money-center banks.
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