Weekly Summary

“Take On Me”

“Take On Me”

We believe that this week’s trading in U.S. financial markets was illustrative of the markets’ shifting focus between inflation and interest rate concerns on the one hand and slowing economic concerns and possible recession risks on the other. This was especially true on Wednesday when Fedspeak remained hawkish even as some disappointing U.S. economic data was released that day. The hawkish rhetoric seems to be focused only on reining in inflation.The divergent reactions of GS and MS stocks in reaction to their earnings.announcements was a stark reminder of the importance of stock selectivity. We maintain our conviction that the U.S. rate of inflation will continue to dissipate more quickly than most investors before “stalling” at a level somewhat above 2%. The profit margins of many companies should be negatively impacted to the extent a slowdown in wage growth lags a slowing rate of inflation.

“What’s Up? (What’s Going On?)”

“What’s Up? (What’s Going On?)”

Many supply chain issues have been resolved mostly and it is our impression that finding and retaining a desired workforce has become somewhat less onerous. We speculate that this recent outperformance might be an indication of a somewhat less tight labor market.
Volatility across sectors continues to be supportive of a well-diversified global portfolio for long term investors. As the Fed’s “quantitative tightening” (QT — contraction of the Fed’s balance sheet) progresses, we expect liquidity to contract in financial markets. We were very encouraged by the positive reversal of many large cap bank stocks on Friday. We view such reversals as a positive indicator for bank stocks in particular as well as for equites in general.

“Bad Habits”

“Bad Habits”

Our general investment approach remains the same as depicted in last week’s commentary. We maintain our preference for big cap quality stocks with good balance sheets, relatively stable cash flows and stable margins. Volatility across sectors continues to be supportive of a well-diversified global portfolio for long term investors. We will continue to closely monitor China’s “reopening,” which we expect to have many “fits and starts.” Continued U.S. Dollar (USD) weakness, along with China’s “reopening” could provide a “tailwind” for the materials sector, and base metals in particular, such as copper. This combination should be beneficial for most commodities. Chinese leadership appears to be now more committed to growing China’s economy.

“We’re Good”

“We’re Good”

Since our November 18 commentary, we have been anticipating the focus of financial markets to vacillate between inflation and interest rate concerns on the one hand, and escalating concerns over the extent of economic slowdowns and the effects that a slowdown will have on margins and earnings. This week’s trading in U.S. securities showcased how quickly that this focus could shift. We continue to recommend that long term investors should try to take advantage of this volatility to better position their portfolios.

“Something Just Like This”

“Something Just Like This”

As the Fed’s “quantitative tightening” (QT – contraction of the Fed’s balance sheet) progresses on a pre-determined course, we expect liquidity to contract in financial markets, including in U.S. Treasuries. We have been highlighting this for quite some time.

“Try Everything”

“Try Everything”

We maintain our preference for big cap quality stocks with good balance sheets, relatively stable cash flows and stable margins. Volatility across sectors continues to be supportive of a diversified portfolio for long term investors. We continue to assume that the Fed will not cut the federal funds rate in 2023 unless there are very dramatic changes.

“I Still Haven’t Found What I’m Looking For”

“I Still Haven’t Found What I’m Looking For”

. We hope that the Fed will be patient enough so that they might see a slower pace of inflation that might allow for a “pause” in rate hikes prior to “over-tightening.” We assume no rate cuts in 2023. In our opinion, most of the economic data that we have analyzed recently, including this week’s data, points to slowing U.S. economic growth along with a lessening of inflationary pressures.

“Born to Be Wild”

“Born to Be Wild”

Our general investment approach remains the same as depicted in last week’s commentary. We maintain our preference for big cap quality stocks with good balance sheets, relatively stable cash flows and stable margins. Volatility across sectors continues to be supportive of a diversified portfolio for long term investors. We expect volatility across virtually all financial markets to continue.