August 2022: A Lesson in Positioning
“You know more than you think you know, just as you know less than you want to know.”
– Oscar Wilde
The tricky summer for investors continues with July posting the best return in eighteen months. While there was some encouraging traction behind the peak inflation and Fed tightening narratives, as well as better than expected earnings, we suspect depressed sentiment and positioning may have played the biggest role. Macro uncertainty is still elevated, but we are encouraged by the recent progress. Nevertheless, the back half of the year will have plenty in store for investors.
Previously in the Market
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September 2022: The Death of TINA?
“It's worth remembering that it is often the small steps, not the giant leaps, that bring about the most lasting change.” – Queen Elizabeth II
For the longest time, lower interest rates meant that, for most investors, There Is No Alternative (TINA) to stocks and like assets to meet long-term financial objectives. With yields backing up across the curve, risk-free rates have moved from an afterthought to a consideration and the bar for sustained outperformance has been set higher. While the new rate backdrop will make the recovery road bumpy, we do not think it is enough to short circuit growth.
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.
October 2022: Seasonal Stabilization?
“The question is not what you look at - but how you look and whether you see.” – Henry David Thoreau
September lived up to its reputation of underwhelming market returns and elevated volatility. Investor risk appetite is still at the mercy of the strong message from central banks that rates will have to stay higher for longer to tamp inflation down, and the consequent effects this has on economic growth. While markets look to be broadly reflecting these risks, uncertainty remains. Encouragingly, sentiment is historically bearish and better seasonal trends are on the horizon.