Previously in the Market
9
Decmber 2022: Positioning Amidst the Juxtapositions
“There will come a time when you believe everything is finished; that will be the beginning.”
– Louis L'Amour
A year of macro and geopolitical shocks with sharply higher global rates has many asset classes derated, with equity valuations the obvious example. Many would be surprised to learn profits in aggregate have grown this year despite the volatility. A backdrop full of inconsistencies, skepticism, and, we suspect, opportunity. Encouragingly, sentiment remains historically bearish and better seasonal trends seem to be continuing with November registering the second consecutive month of strong gains.
November 2022: Less Need for Tightening Speed?
“The beginning is the most important part of the work.” – Plato
The Fed suggested it will consider “cumulative tightening” while charting its future course for interest rates, a dovish development. They also said the terminal rate is most likely “higher than previously expected,” which was decidedly hawkish. The update fits squarely with the volatile, but fluid, market backdrop. Encouragingly, sentiment remains historically bearish and better seasonal trends seem to be taking hold with October registering strong gains.
January 2023: Evolving Influence: Less Macro, More Micro
“Better a little which is well done, than a great deal imperfectly.” – Plato
Macro influence was substantial in 2022. A historically aggressive tightening campaign, decades-high inflation, a prolonged war, elections, and China Covid restrictions were just a few of the macro uncertainties investors had to navigate. We see markets in 2023 gradually shifting towards more bottom-up (micro) influence, particularly those centered on growth prospects. That shift should bring more dispersion between assets, and with it, more active opportunities.
February 2023: Rescheduling That Retrechment
“Storms make the oak grow deeper roots.” – George Herbert
Positive economic developments over the last several weeks have pushed recessionary prospects further into the future. While uncertainty remains, prospects for a soft landing have increased. We acknowledge that the recent move carries a too fast, but not too far, feel, and that some consolidation seems logical. However, a steady stream of improving datapoints should keep long-term investors engaged. We remain guarded, but optimistic.
March 2023: Contagion Cogitation
“People generally see what they look for, and hear what they listen for.” – Harper Lee
The remarkable bank shutdowns over the past week are justifiably raising concern over possible contagion within the financial system. While our base case assumes the worst outcomes will be avoided, the bar for improving investor confidence is now prudently high. Encouragingly, growth is holding up better than feared and as evidenced by the recent fallout, we suspect financial conditions have been tightened enough.