Market Musings 7/6/2022

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

Halftime 2022-we’re down -21% YTD with a recession looming. Where do we go from here?

Fresh off May’s V-shaped recovery, markets entered June holding steady for about a week before the S&P 500 tumbled -8%. June saw the market finally dip into Bear Market Territory as #InflationFears reaccelerated, #RisingYields steepened and #ConsumerNoConfidence demand deteriorated. From a macro perspective, not much had changed other than a rude awakening for overly optimistic investor sentiment.

May’s CPI growing +8.6% dashed investor hopes for decelerating inflation off an optimistic March peak. Reignited out-of-control #InflationFears led Fed to quickly react with a 75 bps rate hike (largest hike in 28 years) and boost expectations to end year up an additional 175 bps to 3.4%. We view the Fed’s primary near-term objection is to fight #InflationFears at all costs including aggressive #RisingYields and potential #RecessionWatch consequences.

Meanwhile, markets became more and more weary of consumer spending trends given ongoing #InflationFears impact and increasing #RecessionWatch concerns. #ConsumerNoConfidence demand worries compounded by forecast cuts at consumer electronic manufacturers and mass layoffs particularly in Tech. While #RevengeTravel remains strong (holiday week travel volume still above pre-pandemic levels), investors worry demand fades quickly going into a recession. While #ConsumerNoConfidence actions feels defensive right now, we are monitoring closely how demand actually plays out.

So we’ve hit halftime with S&P 500 down -21% through the end of June. Markets were due for a pullback and, as we’ve mentioned previously, pullbacks are a healthy part of market cycles. Versus the start of the year, we believe investors likely overestimated #InflationFears persistence, underestimated aggressive #RisingYields plans and couldn’t predict #UkraineCrisis & impact on global supply chain.

As we’ve been positioned since last year, we’re playing defense likely through the remainder of 2022. Portfolio recommendations have been tilted towards #Flight2Safety with even more rotation into #RecessionResilient havens like Healthcare and Consumer Staples and more emphasis on #Dividends names combating #RisingYields. While timing the market is extremely difficult, if you have a long-term horizon to stomach the volatility we believe this is a great time to invest.

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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.

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