Exciting New Consumption Themes Drive Leadership in Market and Economy
April 4, 2024
By Mitchell Anthony
Overview
The stock market rallied along with other risk assets in the first quarter of 2024 similar to what was seen in the last quarter of 2023. The rally had narrow leadership and mostly centered on the excitement that is building in several areas of the economy that are seeing eye opening and astonishing innovation. That innovation has turned into strong demand for the products and services in areas of technology or technology enabled industries such as artificial intelligence, cloud computing, digital devices, obesity and weight loss drugs, and autonomous vehicles.
Read more
Nervous Investors Return to Risk Assets…But Economy Remains too Strong??
January 19, 2024
By Mitchell Anthony
Investor’s hunger for high returns has driven liquidity back to risk assets despite nervousness about the direction of interest rates. Risk assets have performed like a yoyo over the last year as expectations for inflations have been up and down with changing economic data. There are no clear answers to some obvious questions that are on the mind of investors regarding the need for lower inflation? Will employment soften and will consumption decelerate? Investors are clearly hoping for weaker economic data that will support lower interest rates, friendlier fed policy, and as a result higher asset prices. Given the rise in interest rates that we have experienced it is only natural to think that consumption and employment will soften leading to sustained lower inflation. However this has not occurred yet and consumers continue to spend. While many investors worry there is something terribly wrong with the economy and a bust is on the horizon , the real problem is that the economy has too much underlying strength. Softer growth will be great news for stocks and bonds.Read more
Why are Investors leaving Risk Assets!
October 10, 2023
By Mitchell Anthony
Investors left stocks, bonds, REITs, and bitcoin in the third quarter as the uncertainty for inflation caused investors to hit the pause button for BUYS and contrarily build cash positions. Inflation is still above the Fed speeding limit and higher rates will prevail until inflation buckles. The rush out of risk assets hit treasuries the hardest with the intermediate treasury fund (TLT) down 13% from its July 31 highs dealing a blow to prudent investors who thought treasuries & bonds were a safe place to be. Stocks likewise declined with the S&P 500 down 5% and deeply cyclical value stocks as measured by the Russell 1000 Value (IWD) down over 7%. REITs declined 9% or more with office building REITs down over 15% (BXP) and residential property (REZ) faring a bit better at -7%. MACM’s Dynamic Growth portfolio performed better with a modest decline of 1.9%.
Read more
Equities Rock Again - Are New Highs Ahead?
July 3, 2023
By Mitchell Anthony
Investors have returned to risk assets as recent economic data shows a Goldilocks like scenario unfolding yet again. A year ago it was unthinkable that the economy could slow enough to cause inflation to hit a wall without economic growth hitting a wall as well. Somehow the unthinkable is playing out and this Goldilocks like scenario has caused investors to embrace risk assets and give up safe returns of 5% or more in ultra-short treasuries. The S&P 500 rose 8.7% in the second quarter, MACM’s dynamic growth portfolio rose 11.3%, and NASDAQ triple Q’s rose 15.3%. While all of these indexes are still 5 to 10% below all-time highs there has been a substantial bounce in equity markets over the last six months, making an assault on new highs entirely possible. Value stocks were abandoned in favor of sexier growth stocks with the Russell 1000 growth Index advancing 12.8% compared to the Russell 1000 value index returning only 4.1%. The allure of fixed income was lost and treasuries for the most part were down 2 to 4% in the quarter.
The stability of the economy combined with much lower inflation drove the performance in the markets!
Read more
Markets Rally Big in Q1! Can it Continue and with What Leadership?
April 10, 2023
By Mitchell Anthony
The first quarter of 2023 was volatile for both the economy and the financial markets. Expectations for economic growth and expectations for inflation mostly fell during the quarter but optimism for the soft landing ultimately prevailed. Inflation has been a tremendous burden on the US economy for the last two years and consumers are close to the end of their discretionary savings and they have been spending more and getting less for quite a while now. Consumers have yet to show frustration or walk away from the higher prices but it would seem that this sort of mentality is near. The financial markets mostly performed poorly in 2022 as inflation ran out of control and the Fed looked terribly behind in his job fighting inflation. Stocks, Bonds REITS, and Crypto all fell hard. However optimism has started to prevail in 2023 as many of the leading economic indicators showed clear signs of a significant slowdown that will curtail if not end the inflation cycle that we have endured. At this point it is unclear what lies ahead for economic growth but inflation seems set to re-anchor near the 3 to 3 ½% level by the end of 2023.Read more
First Major Banking Collapse Since 2009 – What Does it Mean?
March 11, 2023
By Mitchell Anthony
Silicon Valley Bank (SVB) collapsed yesterday as depositors withdrew cash! This is the first major banking collapse since the great financial crisis of 2008. While the crisis and details of this takeover are still unfolding the early visibility we have reveals that this failure is not part of a systemic problem within the US economy and we are unlikely to see other banks fail in a similar manner. The problems and circumstances that led to the default seem unique to this highly specialized regional bank that worked almost exclusively with the start-up tech industry in Silicon Valley. At first blush it would appear that the majority of major banks are sound and not subject to the unique circumstances that brought down this highly specialized bank. The problem that we have is the fact that banks are not required to disclose or mark to market their bond portfolios that are being held to maturity or they hope to hold to maturity. There could be significant unrealized losses on these portfolios. This crisis may force banks to reveal their bond portfolio status and it could certainly require them to start paying higher returns on cash deposits. Investors are obviously bracing for the worst and the stock prices for almost all banks plunged by as much as 20 to 30% over the last few days as the crisis unfolded. We believe the crisis and the plunge in bank stock prices likely represents a value opportunity. We have been underweight banks in our portfolio since the pandemic began for reasons such as this!Read more
Can Markets Move Higher with Inflation Finally Heading Lower?
By Mitchell Anthony
December 23, 2022
Financial markets have been extremely volatile throughout most of 2022 as high inflation shocked the economy and central banks around the world reacted with significantly higher interest rates. The inflation battle has taken significant time to even dent inflation and the path out of the crisis is still unclear. As a result stocks, bonds, and commodities have all been volatile as inflation and the cost of money is critical to the success of an economic cycle.
Inflation peaked in October and has begun to tilt lower but the path back to the feds target of 2% inflation is still very uncertain. Fixed-income securities have declined in value substantially throughout most of the year as the fed pushed rates higher although the decline has paused over the last few months. Equities have followed a similar path but a modest rally has begun several times that is now again struggling. Yields on treasuries have quadrupled this year reaching as high as 4.5% but falling back to 3.7% today.
The equity market has ebbed and flowed since the June bottom and three rebounds have occurred. While the first two failed, the third has been quite strong narrowing the S&P 500 loss to -18% YTD.Read more
Economy Stays Strong but Risk Assets Move Lower Again in Q3
By Mitchell Anthony
October 10, 2022
The US Economy has found a way to avoid recession despite a record rise in interest rates.
Consumption in the US economy has remained resilient despite a record rise in interest rates and the highest inflation in 40 years. This is somewhat unexplainable but likely tied to the fiscal stimulus that was poured into the US economy in a plentiful manner by the U.S. Congress as it worried about getting the economy back on its feet after Covid. Investors and strategists seemed almost certain that the US economy was headed for recession in the first half of 2022 as the FED began to raise rates aggressively, however after two quarters of negative GDP optimism for economy growth has sprung back to life and the 3rd quarter is expected to be positive with over 2.5% GDP. Actually the US economy was never seemingly in recession despite the negative growth. Unemployment has remained at near record lows and with it came a return to strong consumption. That’s the positive spin, however as we all know inflation is out of control and central bankers are in the position of busting it even if it means busting the values of all risk assets as well as consumption and employment. The Fed has been at work raising rates and investors have been doing it right along with the Fed. Mortgage rates have risen from 2.5 to over 7% currently (figure 1). Surprisingly housing has not busted and consumer spending has continued to grow. Strong Employment seems to be the backbone of the economic resilience. Consumers still have liquidity from Covid stimulus, though it seems to be waning based upon a notable increase in credit usage.
Here good news on economic growth is bad news for our inflation problem as inflation needs to cool rapidly to avoid significantly higher rates and the economic slowdown has not arrived as thought and is truly needed!Read more
Risk Assets Fall As Inflation Fails To Resolve Quickly!
By Mitchell Anthony
September 16, 2022
2022 has been a volatile year for financial assets. Stocks, bonds, and real estate have all slid in price considerably as inflation has remained high contray to the forecast of the Federal Reserve last year. Inflation is the primary driver of liquidity that flows into risk assets. During periods of low inflation and accommodative monetary policy liquidity drives risk assets higher. However when inflation becomes unfriendly that causes the Fed to move to remove liquidity from the system and risk assets perform poorly. This is what we are experiencing today.
The consumer price index or CPI rose to 9.1% this year and is still holding at 8.3% or more currently. Month over month data looks a bit better with only a modest increase in inflation over the last three months but overall the data is still awful. As a result interest rates have risen this year and have been volatile with treasury yields now close to 3.8% and mortgage rates over 6%. Almost all risk assets have seen volatility as optimism and pessimism has played out. The fear is about a terrible economic bust that seems unlikely but can’t be discounted entirely until inflation has been subdued.Read more
Rising Inflation Expectations Drive Investors Out Of Risk Assets!By Mitchell Anthony
July 8, 2022
While inflation has been running hot for over 1 ½ years, investors and the central bank have not believed that the inflation was entrenched and hence inflation expectations stayed relatively low until recently. Over the last 3 to 4 months that position has changed significantly and as a result investors hit the sell button in a dramatic manner last quarter. Risk assets of all types had double digit losses in Q2. Stocks, REITs, Treasuries, Corporate Bonds, Junk Bonds, and Commodities all swooned with the worst losses occurring in high PE stocks and real estate investment trusts. Both of these were down 25 to 30% in Q2. MACM’s dynamic growth portfolio lost over 16% despite a double digit cash position. Clearly we have a new hawkish position from the Fed that combined with investors armed with knowledge of how stocks and risk assets perform during periods of high inflation, combined to drive investors out of risk assets and into cash. Even ultrashort term bond funds lost money in Q2!
The Fed’s new resolve to kill inflation all but ensure that a recession will take place this year and maybe into 2023. The uncertainty of what a recession might do to the current themes of consumption in the globe has caused extreme volatility in risk assets. The US economy has been driven by four strong consumption themes for the last several years. These themes include: housing and related durable goods, the buildout of cloud computing infrastructure, consumers desire to convert to electric vehicles, and consumers pent up demand for experiences. The sustainability of these mostly secular growth themes has now been questioned by investors and will continue to be questioned until more visibility is available causing further volatility in risk markets.Read more
