Unsubscribe

Confirm you would like to unsubscribe from this list

You have unsaved changes on the page. Would you like to save them?

Remove strategy

Confirm you would like to remove this strategy from your list
Give Us a Call

Fund Operations
800.847.0200

FIND ANOTHER CONTACT
Illustrative Candlestick and line chart detail
Markets & Economy

Q&A: Brian McMahon, Matt Burdett, and Christian Hoffmann

Thornburg Investment Management
21 Jul 2025
5 min read

Brian McMahon (Chief Investment Strategist), Matt Burdett (Head of Equities), and Christian Hoffmann, CFA (Head of Fixed Income), recently discussed their market, macro, and investing views.

Q: Can you provide context for some recent macroeconomic issues?

A: (Brian) Markets are really challenged to price in the impacts of the tariff framework and the evolution of regulatory frameworks here and elsewhere. But after we saw a big repricing in early April, the market seems to be assuming very little impact from these measures. Consensus S&P 500 index forecasts for this year and next see earnings growth at least 10% per year, with margin improvement of almost 300 basis points this year. We’ll see. The first quarter was on track with that.

That leads us to the Federal Reserve and inflation, which has moderated with core PCE in May at 2.8%. The White House is arguing for a lower Fed funds rate. I’ll remind you that between 1982 and 2008, the average Fed funds rate was 5.55%, with average core inflation of 2.85%. So, the real Fed funds rate was 2.7% on average for 26 years. Now, the real Fed funds rate is 1.53% on a 4.33% Fed funds rate. So, we’ve seen a positive real Fed funds rate before. It’s just that from 2009 to the first half of 2025, the average real Fed funds rate was negative. People are used to a negative real Fed funds rate.

It’s noteworthy that banking system deposits have stabilized a lot in the last 24 months. Five years ago, U.S. banking system deposits were much lower. That liquidity in the banking system is helping the U.S. economy. I think the fiscal stimulus from U.S. government budget deficits, which will round to 2 trillion this year, is holding up longer maturity U.S. Treasury yields.

Q: There’s a lot of talk about Fed Chairmen Jerome Powell. Any thoughts on who might replace him?

A: (Christian) Historically, it’s been something like a two- to five-month window before the transition. But there’s talk we could have it 10 months or so early, which raises the possibility of a “shadow Fed” that would front-run future policy in short-term rates. It seems a battle between the Kevins: Kevin Hassett (Director of the National Economic Council) and (former Fed Board of Governors member) Kevin Warsh, who was the consensus pick for a bit. That was kind of wild to me because he was historically known as pretty hawkish, which seems like the opposite of what this administration is playing for.

Treasury Secretary Scott Bessent also seems to be in play, which I don’t think is a bad pick. But you have to view that as a trade. The other two things to remember: This is not a monarchy–there are 12 voting members. This official changeover is also almost a year in the future. A lot can change.

Q: Are you seeing volatility within the bond market from the trade and geopolitical events?

A: (Christian) You would think so if you’re reading a newspaper, not looking at markets. But the answer is no. The only real exception is oil markets, which have been responsive to any news. Surprising is a lack of follow-through to any other risk assets, whether in equity or credit markets. The other surprising thing is the unresponsiveness of Treasuries, where you would normally see a flight to quality in a safe-haven bid. The volatility has been fairly subdued.

The near-term potential catalysts are positive: increased buybacks, weighted average maturity reductions, SLR (Supplementary Leverage Ratio) reform, potential rate cuts…All those things at the margin should be both positive and volatility dampeners. That’s on the core rate side. On the spread side, I was looking back at different historic events. After 9/11, the one-day change in spreads for high yield was about 150 basis points, and the Russia-Ukraine war one-day change was about 13 basis points. Risk is learning the wrong lesson because it hasn’t mattered. You weren’t paid for dumping risk assets and jumping into quality. The danger is that you extrapolate that lesson too far. At some point, risk recalibrates in a step function, which will happen. It’s just a matter of time. Broadly, it feels like a sleepy summer. But any event is always in danger of disrupting that at a moment’s notice.

Q: How are you thinking about the policy unpredictability of the tariff situation?

A: (Brian) Since last summer, we could see how the presidential race polling was lining up, and we knew what Trump’s espoused policies were. Tariffs were pretty much at the top of the list. We’ve tried to get out of the way of owning obvious victims of tariffs. We’ve tried to steer around the impact of tariffs in the U.S. But I do expect some opportunities to also come from tariffs.

Q: Given unpredictability in U.S. foreign policy this year, we’ve seen Europe accelerating defense spending, some infrastructure spending, and really moving more toward a coordinated fiscal policy. How are you thinking about the potential downstream effects of the investment landscape in Europe?

A: (Matt) What’s going on with the big change in the U.S. administration is a huge wake-up call to companies in Europe, and companies everywhere. And governments everywhere. I spent time in Europe recently. Brian was also there, so between the two of us, we met with many companies over several weeks. They know there’s a new self-reliance movement that needs to happen.

Germany is probably the best example of doing something very quickly with an infrastructure fund and a defense fund. And it’s sizable relative to their economy. I wouldn’t expect a lot of this to just happen overnight. It’s going to take some time. The tone is clear: “Maybe we can’t rely on the U.S. as much as we did in the past.” It doesn’t mean it won’t be an ally, but there’s just a new self-reliance that needs to happen. That can create opportunities for investing in these markets. Some stocks in these markets have done very well as a result. There will probably be more opportunities in the future. The shift will create opportunities. It will also create stocks to avoid. That’s where we spend our time sifting through those.

 Q: Health care is viewed as defensive, but the sector seems to be facing headwinds now. Why?

A: (Matt) At times, the sector is in the crosshairs of politicians. The Trump administration is doing a Section 232 assessment of pharmaceuticals. It will wait a year to 18 months before possibly imposing up to 200% tariffs on pharmaceutical products that are not made in the U.S.

Not sure if that’s really going to happen. But it’s compressing pharma company multiples, which are at very low levels relative to broad index benchmarks. Historically, these types of valuation opportunities have been good times to own the stocks. Obviously, we’re mindful of tariffs and the other things weighing on the sector. But we do our fundamental work and believe the earnings are going to be there.

Discover more about:

Stay Connected

Subscribe now to stay up-to-date with Thornburg’s news and insights.
Subscribe

More Insights

Fixed Income

Thornburg Investment Insights: A Deep Dive Into Fixed Income Markets

Thornburg client portfolio managers discuss the nuances of the fixed income market and what should be top of mind for investors.
Cropped shot of a thoughtful mature businessman looking at his business and analyzing the effect of inflation
Income

The Essential Role of Dividends in Retirement

Income-hungry investors should not overlook the importance of dividends, which have accounted for nearly half of the S&P 500's total return since 1900.
Press Release

Thornburg Income Builder Opportunities Trust Announces Distribution

Thornburg Income Builder Opportunities Trust (NASDAQ: TBLD) announced its monthly distribution.
Financial stock exchange market display screen board on the street
Global Equity

Investing in Equities: Dividends, Earnings, and the Rise of International

With market dislocations influencing macro trends, we focus on the global equity markets and its many dimensions in an era of income-hungry and diversity-seeking investors.
Globe with a financial forecast overlay
Global Equity

Thornburg’s Flagship Equity Income Strategy

The Thornburg Equity Income Builder Strategy is a global investment strategy designed to produce attractive income and long-term growth. By focusing on high-quality companies around the world with the ability and commitment to pay and grow dividends, the strategy aims to deliver resilient income streams through changing market conditions.
Press Release

Thornburg Bow River Advisers Supports Mechanical Group with Growth Capital

Thornburg Bow River Advisers supports the continued expansion of Mechanical Group.

Our insights. Your inbox.

Sign up to receive timely market commentary and perspectives from our financial experts delivered to your inbox weekly.