Thinking Through Both the Bull & Bear CaseAre you a bull or a bear? That answer will largely depend on your timeframe. However, there are solid arguments for both the bull and bear case in the near term (next 12 months). This post looks at each and why I still lean bearish in the near-term. However, I will treat any meaningful dip (eg 10%) as a buying opportunity.
Is Bad News finally Bad News?Soft landing? That's the market consensus. I am not buying it. For example, retail data for December was horrible - it's third straight month of declines. Are US consumers tapped out? Their savings rates are now at all time lows? Keep your eye on credit quality - how is that looking?
Fed Gets Green Light… Market Thinks OtherwiseThe market ripped higher on news of a softer-than-expected wage inflation report. But haven't we seen this script before? Markets have a recent history of front-running the Fed... only to be bitterly disappointed. From my lens, nothing in this print changes the script for the Fed. And markets are not set up to hear that...
5 Charts to Shape 2023Inflation, rate hikes, the US dollar and bond yields all shaped how things traded in 2022. What will shape investment strategies and sentiment this year? From mine, look no further than what we see with employment, wage inflation and economic growth. And from there - how this dictates the pace and duration of Fed tightening.
Foolish Forecasts and Questions Worth Asking It's the last trading day for 2022 - which means it's time for some 'foolish forecasts'. The S&P 500 booked a 19.4% loss this year... its 4th worst since 1945. My foolish forecast is the lows are not yet in... however 2023 will represent opportunity.
Powell’s Single FocusDuring 2022 - the market obsessed over one thing - inflation. How high? How fast? And for how long? That concern is now largely behind us... however investor's gaze is about to pivot from CPI worries to employment (specifically entrenched wage growth). If Powell is to be successful in winning the war against structurally entrenched inflation - he needs to bring wage growth down to 2%. Today that figure remains above 5.0%. That's going to take time... and is the market potentially caught offside?
Is the Market Fighting the Fed?The market and the Fed are at odds. In short, equities don't believe what Powell is saying. The market is betting the Fed is wrong and will be cutting rates by the second half of 2023 - where the 'dot plot' of 5.0% is a dream. My take: choose to fight the Fed at your own peril. Typically it doesn't work out well.
The 40-Year Tectonic Shift2022 will be remembered as an important turning point. Not because the S&P 500 surrendered 15% to 20%... it will be remembered for the tectonic shift in monetary policy. For the first time in over a decade - interest rates are finally trading at closer to "normal levels". What's more, we are not going back to 0% to 2.0% rates for a long time. And that has many implications for how to choose to invest...
A Textbook ReversalWe've experienced a 16% rally off the October lows. And it's happened in short time. Why? Traders see a far more dovish Fed on much lower inflation / coupled with a mild recession. I'm not buying it... not yet.
My Hypothesis into Year EndI have four key hypothesis into how I am positioned for year end: (i) 2023 will bring a recession; (ii) earnings will contract; (iii) multiples will compress; and (iv) it's premature to think about fighting the Fed. Let's explore...
