Perspectives

Stocks rallied again last week (S&P 500 +4.3%) for the third week in the past four helped by continued better than feared earnings (especially big technology companies), declines in bond yields, and valuation improvement. Best sectors were energy (+10.4%) and utilities (+6.5%); worst sectors were consumer staples (+1.6%) and healthcare (+2.0%). 2Q Aggregate Earnings & Sales Growth Improving Last week, more than 150 companies reported earnings, and overall results continued to show signs… View More

What do you do when you are technically in a recession and inflation is running out of control??? Raise taxes and increase spending on climate change of course! The Gross Domestic Product (GDP) came out at -.90% for Q2 today to confirm our country is technically in recession. The White House is trying to change the definition of recession like it does everything else these days, but the classic definition of a Recession is two quarters of negative GDP. Instead, we are being told we are in a tr… View More

Naturally, during times of market stress, every week seems pivotal. Still, the next five days will be chock-a-block with earnings, economic releases, and economic events that are likely to set the tone for the market and a fair amount of political commentary for the rest of the summer. More than 170 S&P 500 companies will report earnings this week (including 12 Dow components), while 2nd quarter GDP and the Fed’s preferred measure of inflation - the Core PCE- and the ECI will also be annou… View More

The Treasury yield curve flattened significantly over the course of the week as short-term yields rose and long-term yields dropped while inflation continued to run hotter than expected. The flattening of the yield curve started early in the week as China re-imposed Covid restrictions leading to concerns of additional slowdowns to the world economy. Data released on Wednesday showed the consumer price index increased at a 9.1% year-over-year rate for June, which is the highest annual increase in… View More

CPI again surged +0.7% m/m (!) and 5.9% y/y. Shelter rose +0.6% m/m. Both core and headline CPI m/m surprised to the upside again this month, indicating inflation has broadened. Bottom line: U.S. inflation is still too high, and monetary policy needs to continue to tighten aggressively in our opinion. Having chosen a +75bp hike last meeting, that should become the default for the July Fed hike at the end of the month. HOW WILL U.S. CONSUMERS DEAL WITH INFLATION? Consider: 1) SMOOTHING THE … View More

In January 2022 we rebalanced our portfolios to reduce exposure to companies that had extended multiples and were paying little or no dividends. These equities are considered long-duration equities because they will grow into their stock pricing multiples over an extended time period. These companies' stock performance have a history of being very volatile in times of economic slowing and high inflation. In January, we added a number of companies to our portfolio that better met the attributes … View More

Watching For 2023 Downward Guidance During 2Q Reporting Season The second quarter earnings season is set to begin this week and while earnings are expected to be up about 6%, the 2Q story is about energy holding up the aggregate data. We are more interested in guidance for the remainder of the year and into 2023. We are of the view that 2023 estimates are too high and will likely come in once analysts are given the cover from companies. For 2023, the consensus estimate is near $250, our estimate… View More

Talk of a Recession is increasing and the yield curve is inverted again. These are usually sure signs that a recession is on the horizon. As with many things these days, the definition of a Recession is ever changing. In the past, the technical definition of a Recession was two quarters or more of Negative Gross Domestic Product (GDP). However, because of the economic disruptions from COVID-19, they have expanded the definition to make it more difficult to say whether we are going into a Recessi… View More

There is continued evidence of a cyclical slowdown. China has already taken a large hit due to local policy decisions. Europe is dealing with the impact of the Russia/Ukraine conflict. The U.S. is feeling the impact of a Fed that has turned aggressive and is aiming for restrictive monetary policy. U.S. initial jobless claims were revised slightly higher & remained above their recent low at 231,000 last week. The U.S. manufacturing PMI new orders component moved into contraction territory at… View More

Investors are proceeding into the second half of 2022 with caution after the worst first six months to a year in decades. Risk-off sentiment was seen in most areas of the market, fueled by soaring inflation and the Fed's aggressive monetary policy to fears of slowing growth and increased borrowing costs. A much hoped for "soft landing" also hit some turbulence, with Fed Chair Jay Powell remarking this week "there is no guarantee that we can do that and it's obviously something that's going to be… View More