Investors are certainly frowning upon the Fed’s recent comments. We explore large caps trading like small caps, how inflation is affecting consumer behavior and how companies are responding. We also delve into prior periods of market distress to look for signs as to how far along the current drawdown may be.
I said no camels. That’s five camels…Can’t you count? Before we get to the elephant, well, camel, in the room, which is a historically bad April for equities, let us look at one of the root causes: The Federal Reserve. More specifically, investors tend to view rate increases like camels: fewer is better. Going into the meeting, we were expecting over ten…by December. The Fed made good on two (2) at the May meeting, bringing the count to three (3) hikes so far, with eight (8) more anticipated.
The market’s recent selloff is in focus. Can the Fed be seen as slightly accommodative while still getting a handle on inflation, or is that just as impossible as our title? What are the effects of the war in Ukraine and Chinese lockdowns on inflation, and how big are they as building blocks of the current wall of worry? We also discuss the parts of our investment strategy that become more important in this environment.
Will the Fed do little, or is under too much political pressure to just talk about raising rates to fight inflation? Is China’s “zero Covid” policy really an inflation fighting tool? What explains the divergence between institutional and retail investor behavior, and are they considering the tough lessons the market taught us in the 1970s and late 1990s? We address these questions and more.
Our family drives…a lot. Unfortunately, the driver (usually me) does not control the music. That falls to the children, and recently the music has been almost exclusively the soundtrack to Encanto. As a Hamilton fan, I will grudgingly admit some of the songs are catchy. Having said that, the charm wanes after listening to the same song a dozen times on a three-hour tour. Just the same, given the fantastical and magical rally we saw in March, we will look at these charmed markets and see if they might last.
Should the Fed take it easy, or is the heat on? We explore the Fed’s recent meeting and the market’s reaction, not to mention the mounting inflation pressures consumers are feeling. We also discuss the implications of the ongoing crisis in Ukraine as well as China’s burgeoning Covid lockdowns.
What a difference a month makes. Last month, we used the potential for a Bengals Super Bowl win as our backdrop; sadly, the orange and black fell just short. This month, we are writing as the world and, less importantly, markets, are focused on the blue and yellow of the Ukrainian flag. This region is not new to conflict, having inspired one of history’s most famous martial poems, Tennyson’s The Charge of the Light Brigade.
We provide an update on the current crisis in Ukraine, focusing on its effect on inflation as well as equity and fixed income markets. We look at historical analogs and debate what, if any, effect the conflict may have as it relates to the Fed’s efforts to tame inflation.
We provide predictions on the Super Bowl, which should be heeded, given Will’s accurate NASDAQ premonition; we discuss the drawdown and our analysis on the reasons for it. We also address the bifurcation between the performance of the “average” stock and the index, as well as the likelihood and consequences of the Fed meeting its stated rate rise regime.
There are two things we cannot ignore in this month’s recap. One, the historically dreadful January we have seen in stocks. Second, though, is the tremendous run the Cincinnati Bengals have made. Given that today (February 1) marks the beginning of the Lunar New Year and begins the Year of the Tiger, perhaps a fortuitous portent for the orange and black.
