Welcome to Five in Five, a monthly publication from the Investment Team at BTC Capital Management. Each month we share graphs around five topics that illustrate the current state of the markets, with brief commentary that can be absorbed in five minutes or less. We hope you find this high-level commentary to be beneficial and complementary to Weekly Insight and Investment Insight.

This month’s Five in Five covers the following topics:

  1. Have Bond Yields Peaked?
  2. Inflation Rollercoaster
  3. Services and Manufacturing Activity Continues to Struggle
  4. Profit Margins Fall Toward Long-term Average
  5. Probability of Recession During Next 12 Months


1. Have Bond Yields Peaked?

Source: BTC Capital Management, Bloomberg
  • There is reason to believe bond yields have peaked for the year.
  • Oil tends to lead bond yields and has clearly broken down. Organization of the Petroleum Exporting Countries’ (OPEC) spare capacity remains a headwind.
  • Fed officials have made it clear they do not plan to reintroduce hikes.
  • Financial conditions, which have recently had a two-quarter lead on economic data, have stopped easing.
  • Employment data has begun to weaken across several indicators.

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2. Inflation Rollercoaster

Source: BTC Capital Management, Bloomberg
  • Inflation has been elevated as of late, but the year-over-year number has trended down.
  • This is due to the prior year’s comparables which become very difficult to beat with data to be released starting in July.
  • Inflation could trend down for two more months but has a much easier likelihood of rising later in the year.
  • The market is back to anticipating more rate cuts with a dovish Fed and weaker economic data.
  • Bonds are likely in their best window of the year when it comes to likelihood of favorable returns.

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3. Services and Manufacturing Activity Continues to Struggle

Source: BTC Capital Management, FactSet
  • Economic activity, as measured by the Purchasing Managers’ Index (PMI), has seen the two different segments of the economy react in different ways in the last several years, as both have struggled to maintain readings above 50, which indicates economic expansion (a reading below 50 indicates economic contraction).
  • The Services segment of the economy (indicated by the blue line) had shown resiliency post COVID, however, has trended downward recently with the latest reading just below 50, exhibiting economic contraction.
  • The Manufacturing segment of the economy (indicated by the green line) has recovered somewhat in the last several years as companies look to bring their production and assembly activity back to the United States.

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4. Profit Margins Fall Toward Long-term Average

Source: BTC Capital Management, FactSet
  • Profit margins for large cap United States companies reached a 20-year high during 2022 as firms were able to pass on price increases to consumers, bolstering bottom line results.
  • However, since the peak of 2022, profit margins have fallen as corporations and consumers are getting squeezed by persistent inflation costs, as well as customers tightening their wallets.
  • During recessionary periods (as indicated by the shaded areas in the graph), profit margins tend to fall significantly as both consumers and producers readjust to account for muted economic growth.

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5. Probability of Recession During Next 12 Months

Source: Bloomberg Monthly Survey of Economists Forecast
  • The Bloomberg Monthly Survey of Economists Forecast currently indicates a 30% probability of recession in the United States within the next 12 months.
  • The recent peak of this measure was 65% in July 2023.
  • Consistent labor market firmness supports the relatively low probability.
  • Consumers continue to demonstrate willingness to spend, contributing to ongoing economic growth.

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Sources: BTC Capital Management, Bloomberg, Institute of Supply Management, PSC Portfolio Strategy, FactSet
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

This document is intended for informational purposes only and is not an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of  principal. Investments are not FDIC insured and may lose value.