Stan Druckenmiller – one of the greatest investors of all time – is issuing a stark warning. Tread carefully. He echoes much of my sentiment of the past few months; i.e. not only do I think the market is fully valued at 19x forward earnings — it represents meaningful downside risk. What concerns me most is what the market assumes will happen over the next ~6-9 months. E.g., at the time of writing, it sees rates being slashed three times this year. Is that realistic with Core CPI YoY is still traveling around 5.5%? It also sees earnings growth. Will that happen opposite a recession? It’s a long list of assumptions…
Fed Reserve
Actionable market insights delivered to your inbox weekly
If the Apple Falls from the Tree… Does the Tree Fall?
Apple managed to beat very low expectations. However, revenue fell for the second consecutive quarter. Nonetheless, the stock was slightly higher on the news. Consider it a safety trade. More broadly, stocks fell today as they wrestled with the threat of more regional bank failures and a committed Fed. Here’s my basic question: will we see three rate cuts before the end of the year? My view is we won’t see a single cut (let alone three). If I’m right (and I may not be) – there will be a painful adjustment in the market.
“One and Done”… Not Yet
The market wanted “one and done”… that was the expectation. Powell spoiled the party. Whilst the market expected a 25 bps Fed hike – what it did not know was whether any hike would be ‘dovish’ or ‘hawkish’? For example, a dovish hike would be something like “we see the end of inflation… we’re winning the fight”. On the other hand, a hawkish tone would be sentiment to the effect of “it’s still premature to make that call”. We heard more of the latter… less of the former.