Hello Friends,
Welcome to the April market outlook. Topics we’ve previously discussed: global central bank policy, Inflation, and the war in Ukraine continue to be front and center. We had hoped for quick resolution in Ukraine but unfortunately, after a month of bloodshed, negotiations haven’t materialized into anything substantial. After reports of Russian atrocities in the Ukrainian town of Bucha, President Biden called for a war-crimes trial in order to hold Putin accountable. The saber rattling continues. There were reports that Russia was considering using chemical weapons it had removed from Serbia years ago. I don’t mean to alarm anyone, as for the moment, these are just reports and there have been no signs of chemical usage yet. Let us all hope and pray for no further aggression as it’s very hard to imagine a world where NATO and Western Allies don’t intervene if chemical weapons are used on innocent civilians.
Last month we finally got our first rate hike. It’s a bitter sweet moment as we expect rate hikes to decelerate growth not just in the U.S., but across the globe. The good news is we finally took a step towards fighting inflation. But it’s only a step. Don’t forget that the February CPI report was pre-invasion numbers. In our opinion, we’re going to print a very ugly March CPI number. Perhaps even a ten handle. Bond markets are aware of this and are pricing in a 50% chance of a 50 basis point rate hike in May, June and August. Given our deficits, and the economy’s reliance on zero interest rates to produce even below trend GDP growth the last few years, we are concerned about numerous hikes, which is why we believe a “soft-landing” will be impossible. In our opinion, the Fed is on a path to hike us into a recession. The good news is we expect it to be a mild recession, nothing similar to 2008 or previous economic crises. Not the greatest news, but it will be manageable. We also believe the Fed will pivot pretty hard in this environment. We hike now to combat inflation but as soon as recession hits, we expect them to reverse course and begin cutting.
Later this month earnings season will be underway with JP Morgan kicking it off on April 13th. Since we’re on the topic, we expect bank earnings reports to be mediocre. Over the short-term bank stocks won’t do much. Over the long term, we think there’s good opportunity. As far as earnings in general, we expect some pretty weak numbers due to margin compression. Payroll and energy costs are through the roof for most employers. In fact, don’t be surprised if a few companies pre-announce in order to control the narrative. On the positive side, we expect huge numbers from energy companies who have benefitted from the rise in prices over the last 2 years.
That’s it for this month. Please remain safe and reach out with any questions.
PLEASE SEE IMPORTANT DISCLOSURE INFORMATION: Read More
