Weekly Comments: “Easy Does It”

On the heels on last week’s trifecta news from the Fed raising rates 75 bps, GDP coming in at -0.9% and a barrage of earnings reports led by big tech, this week seems to be more of a breather where the market is taking an “Easy Does It” approach as it continues to try and work itself into another positive finish on the week.  With that in mind, let’s do the same and focus on a few “Easy Does It” themes as far as what we’re seeing right now. 

Here are the things we know:

  1. The US economy is starting to slow down, as evidenced by the GDP data and lowering yields last week.  But that is not necessarily a bad thing as you would expect a slowing as the Fed raises rates.  The market showed us that last week with the rally after the GDP report came out.  Even with improved performance lately in growth-oriented sectors like tech which has started to come out of the woodwork lately.
  2. The Fed is planning to go “data dependent” and future rate hikes may not be as high as they’ve been.  Again, not all that bad and already very well received by the markets.
  3. Quite a lot of downside pressure was already priced in going into the Fed’s announcement last week.  Even coming into the current earnings reports.  So, in terms of psychology, the market could be sensing the “worst is over” and is now making an attempt to come out of the depths of despair.
  4. Supply chain will eventually work itself out because it has to.  This is textbox economics in order for global economies to sustain themselves.  It is only a matter of time.
  5. Second quarter earnings have been soft but really not all that bad.  For example, we saw nice reports out of AMD and PayPal and both stocks have performed as expected.  We bought into both stocks this week in the Triumph stock model. 
  6. Speaking of earnings, as of 8/5, 87% of the S&P 500 companies have reported Q2 earnings and 75% have reported a positive earnings surprise with 70% reporting a positive revenue surprise.  This is good to see.
  7. In energy news, OPEC raised production by only 100,000 barrels per day.  Which in the grand scheme of things, is a “blip in the barrel” in what is already a challenging supply chain in the oil markets.  This may lead to a resurgence of higher gas and commodity prices especially as we head into the winter months.  And as the war in Ukraine continues.

All this said, we should expect to see continued volatility in the weeks and months ahead, particularly as earnings and outlooks soften.  And as yields grind higher as the Fed continues rate hikes.  But yields may settle in lower than market expects right now or certainly from their June peaks as the Fed has hinted at lower rate hikes going forward.  That’s a good thing.  Another good thing is the markets may end up seeing the light sooner than later as it projects lower inflation in conjunction with an already strong jobs market.  Which is the recipe for growth and technically what the Fed is attempting to do as they engineer a soft landing.  Only time will tell, but for now it seems like we are heading in the right direction.  However, we still recommend to stay defensive and invested in as much quality as you can on both the equity and fixed income side.  Such as a tilt towards defensive sectors such as health care, staples and industrials.  In fixed income, it makes sense to tilt towards investment grade bonds and lower duration maturities. Which is how we have been positioning the models at this time.

Thanks for reading and wishing you an “Easy Does It” weekend!

8/4/2022*S&PDOWNASDAQOil10 Yr Bond %VIXMOVE
Current (8/3)4,15532,81312,66890.662.748022.0122.0
Last Week (7/27)4,02432,19812,03297.262.734023.2117.3
% Change Week3.3%1.9%5.3%-6.8%0.5%-5.6%4.1%
YTD-13.4%-10.3%-20.0%19.2%68.8%32.2%45.1%

*All data sourced from Yahoo Finance as of the close on the date indicated.

Disclosure:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

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