Group 1 - The experiential economy, which thrived post-pandemic, is showing signs of decline, raising concerns about its sustainability [1][2] - The initial thesis of consumers spending more on experiences rather than goods is being challenged as recent data indicates a downturn [2] - Macro data suggests a deteriorating labor market, with job creation averaging less than 30,000 net new jobs per month from June to August [3] Group 2 - Private sector hiring data from ADP indicates an average loss of 11,250 jobs per week over a four-week period ending October 25, highlighting a significant employment decline [4] - The Federal Reserve's decision to cut rates in September was a response to worsening employment conditions, but future rate cuts are uncertain due to rising inflation [4][5]

Financial Data and Key Metrics Changes - The company reported a net investment income (NII) of $0.26 per share, consisting of $0.39 per share of net investment income offset by $0.13 of realized capital losses [4] - Recurring cash flows totaled $17 million or $0.67 per share, consistent with the prior quarter [4] - NAV increased to $14.21 per share as of September 30, up from $14.08 per share at the end of June [5] - GAAP return on equity for the third quarter was 3% [5] - The company recorded GAAP net income of $11.43 per share for the third quarter, with investment income of $16 million and unrealized gains of $5 million [16][17] Business Line Data and Key Metrics Changes - The company deployed $60 million into new investments during the quarter, with a weighted average effective yield of 16.6% on new CLO equity purchased [5] - Three resets and four refinancings of CLO equity positions were completed, lowering debt costs and extending reinvestment periods [6] - The company repurchased $21 million of common stock at an average discount to NAV of 8.3%, resulting in NAV accretion of $0.07 per share [7][8] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index returned 1.6% for the quarter, with a trailing 12-month default rate of 1.5%, up from 1.1% as of June 30 [11] - CLO new issuance volume was $53 billion during the quarter, slightly up from $51 billion in the second quarter [13] - The company had $52 million of cash and undrawn revolver capacity available for investment as of September 30 [14] Company Strategy and Development Direction - The company aims to capitalize on opportunities in the CLO investing market, leveraging its scale and experience [4] - The board increased the common share repurchase authorization to $60 million, reflecting a commitment to enhancing shareholder value [8] - The company plans to continue aggressive share buybacks when shares are trading at a discount to NAV [8] Management's Comments on Operating Environment and Future Outlook - Management noted that the Fed's rate cuts have impacted earnings power, leading to a reduction in monthly distributions to $0.11 per share for the first quarter of 2026 [9] - The company believes junior CLO debt continues to offer compelling risk-adjusted returns compared to comparably rated corporates [9] - Management expressed optimism about credit quality, citing positive revenue and EBITDA trends among below investment-grade companies [24][26] Other Important Information - The company announced the scheduled redemption of 100% of its 7.75% Series B Term Preferred Stock to optimize capital structure [6] - As of October month-end, the company's NAV was estimated to be between $13.94 and $14.04 per share [18] Q&A Session Summary Question: Future expectations for credit quality given recent revenue and EBITDA trends - Management indicated that positive revenue and EBITDA trends among below investment-grade companies are credit positives, and defaults are not expected to increase materially [24][26] Question: Drivers behind the increase in annual trading volume - Increased recognition of premium yields and low credit expenses in CLOs has driven trading volume, along with the advent of ETFs [28][29] Question: Impact of dividend reduction on earnings power - Management acknowledged that the reduction in dividends is primarily due to Fed rate cuts affecting earnings power, but they are making rotations within the CLO equity portfolio to offset some of that [31] Question: Activity regarding asset rotation and cash holdings - The company has seen paydowns in investments due to refinancings and resets, leading to a build-up in cash, which will be used for both paying down preferred stock and buying back common shares [35][40] Question: Industry concentration in software and technology - Most of the concentration is in enterprise software, which is considered stickier and has performed well historically [43] Question: Investment focus in CLOs - The company generally follows market trends in industry concentrations, with technology and healthcare being the highest [44]

Economic Indicators - The yield on the 10-year Treasury fell four basis points to 4.08% as private data became crucial due to the federal government's shutdown, which may end soon after the Senate passed a temporary funding bill [1][10] - The ADP report indicated that private-sector payrolls increased by 42,000 in October, following declines in the previous two months, suggesting a slowdown in the labor market during the second half of October [3][11] - A report from Challenger, Gray & Christmas Inc. highlighted that employers announced the most job cuts for any October in over two decades, raising concerns about the labor market's health [6][11] Market Reactions - The reopening of the government is seen as a potential catalyst for supporting current-quarter GDP forecasts and increasing market liquidity, which is typically favorable for stocks [2][10] - The tech-heavy Nasdaq 100 closed lower, with Nvidia Corp. dropping 3% after SoftBank Group sold its entire stake in the company to fund AI investments, leading to a 10% decline in SoftBank's stock in Tokyo [7][11] - Money markets are pricing in a roughly 70% chance of a Federal Reserve rate cut next month, influenced by the cooling jobs market [10][11] Legislative Developments - The House of Representatives is expected to consider a spending package that would keep most of the government open through January 30 and some agencies through September 30 [7][11] - If the bill is approved, it will go to President Trump, who has endorsed the legislation, potentially leading to the quick release of delayed economic data, including the September jobs report [8][9][11]

Core Viewpoint - Gold prices increased during the morning Asian session due to expectations of Federal Reserve rate cuts, which would make the non-interest-bearing precious metal more attractive [1] Group 1 - The rise in gold prices is linked to the anticipated monetary policy changes by the Federal Reserve [1]

Market Analysis - Crypto market leverage significantly cleared after the October 10 liquidation, potentially indicating a short-term bottom [1] - BTC price expectations for the next 3–6 months range from $90 thousand to $160 thousand, showing a bullish trend based on options implied distribution [1] Influencing Factors - Potential Fed rate cuts, liquidity easing, and new regulations are cited as medium-term tailwinds [1] - These tailwinds could potentially extend the current market cycle to 2026 [1]

Group 1 - The stock market is experiencing a significant sell-off, with the Nasdaq down over 4% and the S&P 500 losing more than 2% in the past week [1][2] - Concerns over high valuations, particularly in the tech sector, have been a major factor in the market decline, with Palantir's disappointing earnings highlighting these issues [3][4] - Major financial leaders, including CEOs from Goldman Sachs and Morgan Stanley, have warned of potential market corrections due to overvaluation, especially in AI-related stocks [8] Group 2 - There is a growing sentiment on Wall Street to "buy the dip," with firms like JPMorgan expressing intentions to purchase during market downturns, citing strong economic fundamentals [10][11] - Some analysts believe the current weakness in tech stocks presents buying opportunities for investors who missed previous gains [11][12] Group 3 - Recent weak job market data, including over 153,000 job cuts in October, is strengthening the case for potential Federal Reserve rate cuts [13][14] - The probability of a 25 basis-point rate cut in December has risen above 70%, indicating a shift in monetary policy outlook [14][15] Group 4 - A critical technical level for the S&P 500 is identified at 6,665, which represents the 50-day moving average; failure to hold this level could lead to further declines [15][16] - Some strategists anticipate a rebound in the index, suggesting potential upward movement as early as the following week [16]

Federal Reserve Insights - The Federal Reserve is currently experiencing a divided stance among its officials regarding interest rate decisions, with some advocating for rate cuts while others remain cautious [2][11][12] - Recent data indicates a labor market that is gradually weakening, with inflation running above the 2% target, estimated at around 3% [4][10] Investor Concerns - Investors are facing a "wall of worry" due to three main factors: concerns over AI spending following recent Meta results, uncertainty about the pace of rate cuts, and the worst employment market data in 22 years [6][17] - There is a need for catalysts such as government reopening for economic data clarity and upcoming earnings reports from tech companies like Nvidia to potentially revive market sentiment [7][10] Economic Outlook - The economy is showing signs of slowing, particularly in the employment sector, which may lead to three additional rate cuts over the next 12 months [9][11][16] - Consumer companies are reporting weak earnings, particularly among lower-end consumers, while the higher-end segment is performing better, indicating a narrow market performance [17] Earnings Performance - Third-quarter earnings are reported to be up by 10% year-over-year, providing a positive note amidst concerns about the overall economic outlook [18]

Summary of Key Points from the Conference Call Transcript Industry Overview - **US Government Shutdown**: The US government shutdown is likely nearing its end, with expectations for it to conclude around the second week of November. The shutdown is estimated to have reduced 4Q25 US real GDP growth by 1.15 percentage points (pp) on a quarter-over-quarter annualized basis. This effect is expected to reverse in 1Q26, adding 1.3 pp to growth as furloughed workers return and some federal purchases and investments spill over from 4Q25 to 1Q26. The forecast for 4Q25/1Q26 real GDP growth is now 1.0%/3.1% compared to previous estimates of 1.3%/1.5% [2][5][7]. Core Insights - **Employment Reports**: The release of the September employment report is anticipated shortly after the shutdown ends, while the October report may be delayed until December. The November employment and CPI releases may also face delays due to the shutdown [3][5]. - **AI and Market Dynamics**: Concerns about an AI bubble persist, but analysts believe the US tech sector is not currently in a bubble, as public market valuations and capital activity levels remain below Dot-Com peaks. Strong fundamentals and balance sheets in the tech sector support this view. S&P 500 3Q25 EPS growth is tracking at 11% year-over-year, exceeding consensus expectations [7][8]. - **Federal Reserve Outlook**: Anticipated Fed rate cuts are expected to help reverse the recent gains of the US Dollar. Despite rising Treasury yields due to a hawkish tone from Fed Chair Powell, a sustained increase in yields would require better US growth outcomes [8][9]. Regional Economic Insights - **Europe's Economic Outlook**: Spain's economic outlook is positive, with growth forecasts for 2026/2027 raised to 2.3%/1.9% due to strong investment and productivity growth. Conversely, Germany's potential growth estimate for 2025 has been lowered to 0.5% from 0.8%, with a forecast of only 0.3% real GDP growth this year. However, a cyclical rebound in Germany is expected due to fiscal support and a reduction in global trade tensions [9][10]. Additional Considerations - **Yen Intervention**: The potential for Yen intervention is being monitored, as the Yen's performance aligns with fiscal premium shifts and near-term Bank of Japan expectations. Current conditions do not warrant intervention, but caution is advised due to recent Yen weakness [14]. - **UK Gilts Performance**: The outperformance of UK Gilts is expected to continue, with further Bank of England cuts anticipated due to ongoing disinflation. Year-end 2025/2026 10-year Gilt yield forecasts have been lowered to 4.25%/4.00% [14]. - **AI in Power Markets**: The rise in data center electricity demand is transforming global power markets, presenting opportunities in fuel cells that can provide stable, dispatchable power independent of grid constraints [14]. This summary encapsulates the key points discussed in the conference call, highlighting the macroeconomic environment, regional economic forecasts, and specific industry insights.

Let's get to the outlook for the markets now with stocks taking a little bit of a leg lower. Yang Yu Ma is here PNC asset management chief investment strategist. Welcome back.It's nice to have you. So, how vulnerable do you do you see this market right now. >> I wouldn't say the market is extremely vulnerable.I think the action we're seeing right now is healthy push and pull uh some pullbacks in the market, some resetting, some assessment of the actual growth trends that we're seeing and who can capitalize ...

Interest Rates and Market Expectations - The market had overly optimistic expectations for Federal Reserve easing, which were not supported by compelling data, leading to a return to equilibrium with anticipated rate cuts next year [2][3] - The 10-year Treasury yield has increased by more than 15 basis points, attributed to a more hawkish stance from Fed Chair Powell [3] Inflation and Investment Strategies - There is a belief that inflation risks are skewed to the upside for the next 6 to 12 months, suggesting a need for exposure to Treasury Inflation-Protected Securities (TIPS) [5][6] - TIPS currently offer a positive real return, making them an attractive investment option [5] Federal Reserve's Future Actions - It is unlikely that the Federal Reserve will implement another rate cut in December, with potential for one or two cuts in 2026 depending on economic data and inflation trends [6][7] Fixed Income Market Performance - The fixed income market is experiencing solid returns across various sub-asset classes, with international bonds yielding a total return of 9.5% year-to-date [8] - There is a renewed opportunity for investment in international bonds, particularly as the dollar weakens [9][10] High Yield Market Concerns - Caution is advised regarding high yield investments, particularly in the leveraged loan market, which may contain lower-quality assets [10][11]