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adriant – Page 23 – adriantout
adriant

adriant

  • Joined: December 24, 2025
  • Articles: 493

Not Just Equities Trading ‘Per the Script’

A little over 2 months ago - I described the market as "euphoric". For example, valuations were in excess of 20x forward earnings - despite what we saw in bond markets. Something was horribly wrong. My simple advice was do not add to positions at those levels. The downside risks were just too high. My thesis was whilst stocks could easily rally to ~4500 -- any further meaningful upside felt 'limited' . Turns out we didn't go too much higher. Now stocks could easily catch a bid in the 4200 zone - that's what I expect. However, the risk/reward still doesn't look that favourable...

Is it Still Going to be a “Soft Landing”?

2023 has been one of the more difficult years to navigate. For example, if you chose the wrong stocks, sectors or simply decided to hide in cash - you didn't fare well. However, what's also made it hard has been the various shifts in sentiment the past ~9 months. These shifts have 'whipped' traders around. Today, with the US 10-year yield challenging almost 5.0% - the "R" word is back in the vernacular. Much of this can be explained by understanding where we are in the economic cycle... and today it's "late cycle". The challenge is navigating this phase is the most difficult of any... as it will often last longer than many expect.

September Didn’t Disappoint

Coming into September - I reminded readers it has the worst record of any calendar month. The Trader's Almanac tells us the S&P 500 has lost an average of 1% each September over the past 10 years. And over the prior 25 years - the average monthly returns are -0.67%. Dismal. This year, the S&P 500 gave back 4.9% for the month. But it wasn't just September - stocks hit the pause button after June. For the quarter, the Index surrendered 3.64%.The Nasdaq fared far worse - losing 4.12%. None of this should come as a surprise...

Bye Bye Sugar High

Are equities finally connecting the dots? Maybe. Whilst this has been a difficult market to trade - my sense was to approach with caution. From mine, there were too many open questions. For example, when the market was trading around 4600 - my sentiment was the downside risk outweighed any upside reward. We are now ~8% lower... closer to the zone of where I felt the S&P 500 could trade. In short, valuations were stretched. Put another way, the risk premium for owning stocks wasn't there. But markets pushed higher - taunting the Fed on their "higher for longer" script.

The Battle-lines are Drawn

Here's today's question: do you think 18.3x forward earnings is a good risk/reward bet? For me, the answer is no. And I say this because investors have a very compelling alternative. We don't need to look any further than bond yields. For example, the 12-month US treasury yield offers investors 5.45%

Fed: We’re Not Finished Hiking

Let's start with a quick quote from yesterday's missive: "From mine, Powell will deliver a hawkish tone leaving the door wide open for further hikes in November or December if needed". That's exactly what he said. From my lens, Powell sounded hawkish today - reminding investors they are are not done hiking. Not yet. And if I'm to be blunt - he has sounded hawkish at every meeting this year. But investors will often choose to hear what they want to hear. Be conscious of what biases you have. The script is higher for longer and the market is yet to adjust. It will.

Fed Trying to Thread a Narrow Needle

Tomorrow we will hear from the Fed. It's very unlikely the world's most influential central bank will raise rates this month. However, it's my view Jay Powell is not about to drop any dovish hints. Remember: just because they may be closer to the end of rate hikes - that doesn't mean they are about to cut. Rate cuts are dovish. However, rates staying higher for longer is hawkish. And as inflation comes down, this means real rates are rising (with the Fed on hold). From mine, we hear a hawkish Fed tomorrow. And the market has not priced that in.

History Lessons 

History offers us valuable lessons. During the week, I read an interesting Bloomberg article citing research from financial historian Paul Schmelzing. He explained at a Jefferies (Hong Kong) forum that it’s effectively impossible for data from recent decades to offer insight into whether there’ll be a lasting impact on borrowing costs from the pandemic. This is interesting as the popular narrative is rates will remain high for a very long time.... but will they?

Where Do We Go From Here?

Major averages pulled back this week on fears rates could remain higher for longer. Makes sense - with the US 10-year above 4.25% - that's a reasonable assumption. But here's the thing: get used to it. Whilst rates might feel 'tighter'... rates are still not historically high. Not even close. What was not normal was rates being artificially suppressed to near zero for 15 years. And that might prove to be a difficult adjustment for some people. So where to from here? The honest answer is none of us know. What follows are some of the assumptions being made; and perhaps gaps in the market's thinking... it starts by asking quality questions.

Have Jobs Slowed Enough for the Fed to Pause?

Last week offered plenty of macro data for traders (and the Fed) to consider. Core PCE remains stubbornly higher at 4.2% YoY - moving higher month on month. However, there is signs of a slowing labor force - with job additions missing expectations. The question is whether the jobs market is now slowing enough for the Fed to end rate hikes? For example, total unemployment is very strong at 3.8% and there are almost 9M open jobs. That's not a weak labor market...