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Perspectives

The Choppiness Continues

by Fortem Financial March 7, 2023

U.S. equities were higher last week (S&P 500 +1.9%) after three weeks of declines. Markets continued to reprice upward Fed rate expectations. Best sectors were materials (+4.0%), communication services (+3.3%) and industrials (+3.3%); worst performers were utilities (-0.7%) and consumer staples (-4.0%).

1. There is clearly not yet enough progress on inflation to satisfy the Fed which means higher risk of ongoing hikes. This factor coupled with declining money supply and the inverted yield curve creates headwinds for GDP growth as the year progresses.

2. Despite an increasing number of job cut announcements (especially in technology), there is still little evidence of a deterioration in the very strong labor market.

3. The Conference Board's quarterly survey shows an improvement in CEO confidence, while consumer confidence continues to fall.

4. We believe the Fed will execute a "higher for long" policy in order to set inflation on a sustainable path downward, but will still fail in getting down to the Fed's 2% target.

5. Businesses are likely to continue to cut production due to falling demand and elevated inventories. The cost of capital has increased at the fastest pace in over 40 years.

6. Home prices are weakening, but not enough to offset the deterioration in affordability due to rising mortgage rates.

7. 2024 consensus earnings estimates were $270 last summer, but have fallen to $250, where estimates were last summer. (2023 estimates have fallen to $220 and are still too high.)

8. Equity valuation is higher than at year-end as stocks are up and earnings estimates have been revised downward. Stocks are more than 18x falling consensus estimates and are, at best, fully valued.

9. Commodities may be in a secular uptrend (despite recent weakness) especially as countries focus on shifting towards renewable energy, putting upward pressure on non-energy commodities.

10. China's reopening is providing a near-term lift to global growth, making the job of central bankers more difficult.

Source: Bob Doll - Crossmark

Market and Index Changes for the Week Ending 3/3/2023

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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