The market was worried about an overly hawkish Fed heading into the Feb FOMC meeting. However, Fed Chair Powell appeared to lean the other way... hinting at dovish tones. New language like 'disinflation' were introduced... suggesting the cash rate may not need to get to 5.0%. It didn't take much for stocks to rally as a result...
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?
Peeling the Inflation OnionFed President John Williams uses the analogy of an onion when describing inflation. For example, the outer most layer consists of commodities. The middle layers consists of goods. However, the inner most layer - its core - consists of services. And it's services inflation which generates inflation inertia. And that's the mechanic which the Fed are exclusively focused on...
December CPI – The Good and the BadThere was a little of something for the bulls and the bears with December's monthly inflation report. On the surface, inflation is coming down. However, if we look underneath the hood, most of that inflation is goods. Services inflation however remains doggedly high (i.e. wages). And whilst goods inflation could fall to "zero" - if services inflation remains twice the Fed's 2.0% objective - they will continue to tighten (even if that means simply holding rates at a higher level)
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.
Powell Pop… Don’t Get Too ExcitedThe market is popping on the hope of a more dovish Fed going forward. Chairman Jay Powell gave the market 'hope' by saying the Fed is likely to moderate the pace of hikes. But is that 'really' that bullish?
A Framework when Thinking about the FedHow fast? How high; And for how long? That's the framework when thinking about the Fed's policy moves. From mine, the market are offside in terms of how high and particularly how long. What we do know is the pace will slow.
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...
Classic Bear Market RipStocks are likely to push higher through to the end of the year. It's what we usually find after mid-term elections. But for now, this feels like another bear market rally... which will likely find resistance around the zone of 4100 on the S&P 500. We are a long way from any Fed "pause or pivot"...
