Market Musings 6/16/2022
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
With Fed opting for speedy #InflationFears easing, the optimistic #RecessionWatch economic soft landing is looking likely out of reach.
The S&P 500 teased investors twice in early May dipping near bear market territory before a remarkable rebound to finish the month. Markets rallied on optimism that the Fed could steer towards a #RecessionWatch soft landing with peaking #InflationFears and strong #COVIDRecovery. The tug ‘o war to start June succumbed to the bears when May CPI data showed reaccelerating #InflationFears.
As we mentioned last month, bear and bull markets are normal and part of market cycles. For example, the last bull market saw the S&P 500 grow +120% from March 2020’s low to January 2022’s high and up +42% above the previous bull market’s peak in February 2020. S&P 500 is now down -23% from the all-time peak (as of 6/16). It’s official－welcome to bear market territory… 🐻
So what now? We’re likely on the cusp of a recession. Yesterday, the Fed raised the target rate by 75 bps－the largest rate hike in 28 years. The Fed also expects to raise the target rate by 175 bps more to 3.4% by the end of the year. Unfortunately, rate hikes are not an immediate on/off switch for inflation and will take time to work. After last year’s “transient inflation” miscalculation, we expect the Fed errors on the aggressive side of #RisingYields front-loading additional rate hikes to ease #InflationFears at all costs.
Meanwhile, macro headwinds like #UkraineCrisis and China #COVID19 lockdowns likely continue to fuel elevated inflation near-term from surging energy costs, supply chain issues and geopolitical uncertainty. Higher prices and uncertainty can lead to lower demand from #ConsumerNoConfidence. Consumer demand issues could also compound if strong employment reverses. Jobs data is typically backwards looking and mass layoffs have already begun particularly in high-growth tech sectors. We believe with the Fed likely opting for speedy #InflationFears easing the optimistic #RecessionWatch economic soft landing is likely out of reach.
As we mentioned previously, we’ve been prepping for #RisingYields shifting towards a #Flight2Safety portfolio tilt for the past year. We still remain bullish on our remaining #Growth names long-term, but expect lots of near-term volatility. With a likely recession incoming, we’re now tilting towards #RecessionResilient or companies and markets likely better positioned for an economic downturn like staples and basic services in consumer, industrials and healthcare.
Nobody knows for sure if this is the market bottom or for how long before we switch back into bull market mode. However, we do view the -23% S&P 500 pullback as an opportunity for investors with long-term horizons to add to portfolios. There’s no such thing as timing the market. But yeah, this is probably the time. 😉
Tip: Setup auto deposits for an easy “Set It and Forget It” way to take advantage of the market pullback with dollar cost averaging.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Lorena Martínez