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CLA OUTLOOK

Key Insights for Sound Financial Strategies

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MAY 18 WEEKLY INSIGHTS

New Fed chairman confirmed as markets look for direction on rates

  • The U.S. Senate confirmed Kevin Warsh, a former Federal Reserve governor and Wall Street executive, as Fed chair at a pivotal moment for monetary policy.
  • He is expected to bring a shift in policy tone, having previously criticized the Fed’s framework and signaled an openness to lower rates.
  • Markets and policymakers are focused on how Warsh will balance inflation risks with potential rate cuts.
  • While markets have shifted to pricing in no cuts in 2026, investors will be following the new chairman closely at his first meeting in June. (Source: FRED, Federal Reserve)

Bond volatility stabilizing, improving benefits for a 60/40 portfolio

  • Bond fundamentals meaningfully improved, with higher starting yields and moderating inflation supporting stronger expected real returns and lower interest rate sensitivity.
  • Diversification benefits improved as elevated stock-bond correlation from the 2022 bond volatility shock normalizes, allowing fixed income to better offset equity risk.
  • The strategic case for a 60/40 portfolio remains intact, with improved valuations and better bond return prospects reinforcing diversification and reducing reliance on equities for long-term outcomes.

High yield munis lead with higher income and technical demand

  • High yield municipal bonds are positive year-to-date, with the Bloomberg HY Muni total return index up 2.2%, outperforming higher-quality muni segments. 
  • Outperformance versus investment-grade munis has been driven by carry, as elevated yields and spread income supported returns despite rate volatility. 
  • New demand and fund inflows in the first quarter of 2026 supported the segment, with high yield capturing a meaningful share of muni inflows along with long-duration bonds.
  • CLA maintains exposure to high yield municipal bonds, both in our core strategies and in a short- and intermediate-duration complementary strategy. (Source: Goldman Sachs, Morningstar)

Develop strong financial strategies

Tune in to the CLA Outlook for 2026 as we discuss timely topics around policy, the economy, and market performance.
Read the CLA Outlook

Strategic Opportunities

The Big Picture for 2026

The CLA Outlook signals a turning point: stabilized inflation, growth above trend, and easing interest rates. Explore the key forces influencing portfolios in the year ahead.

  • Economic outlook

    Growth is back on the horizon after three years of higher interest rates and restrictive Federal Reserve policies, with AI helping to transform industries.

  • Fiscal policy

    The rising U.S. deficit remains a key concern as government spending continues to outpace revenues — watch for this to be a focal point heading into midterm elections.

  • Fixed income outlook

    Lower interest rates should be a tailwind to bonds in 2026, though consider credit quality and duration when building high-quality income portfolios.

  • Equity outlook

    Despite elevated stock valuations, led by tech-dominant Magnificent-7 stocks, equities remain compelling because of strong earnings growth and a robust economic backdrop.

  • Alternatives outlook

    Lower interest rates favor private equity and private real estate, while private credit can warrant caution. Manager selection and due diligence remain critical.

  • We can help

    No matter your financial position, incorporating sound tax and wealth advisory could help you achieve more.

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