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hank said, Don’t bet the farm on any particular point. Conventional wisdom.
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Covering the most important charts/themes in markets and investing, including the "Fed Put," the Steepening Signal, Blood in the Streets, and more...
The insights into falling commodity prices are of interest (although precious metals / miners have surged this year). Suspect the commodity downturn is normal after a very heady period. Should level off. Checking 3 commodity related funds I’ve owned in the past (but no longer own) …
1-Year Return … 3-Year Annualized
PRAFX -11% …….… +19%
PRNEX - 2% ……..… +26%
BRCAX - 8% ……..…. +22%
*Numbers (rounded) from MarketWatch
The falling commodity prices from Bilelllo make sense as the economy is slowing (less demand). I moved on most of my commodity positions this year that yielded a modest gain. Precious metals moved up in recent weeks as the coming recession is realized. The inverted treasury yield curve remains and the spreads between 2mo-, 3mo-, and 6mo-10 yr have increased. The 10 yr yield keeps falling and it reached 3.48% as of 3/31/23.
Labor data is coming next week.
Tech stocks are moving up as if the Fed will pause and pivot this summer. IMHO it is a forgone conclusion that the Fed will cut rate this year unless we enter a bad recession. Still there are several possible scenarios that have yet to play out.
In the meantime, I keep reading and positing myself defensively if and when the recession arrives.
Recommends intermediate bonds
Authers at Bloomberg has a very interesting article pointing out that the hopes that bank crisis will precipitate Fed easing also seem to require recession. Not good for earnings!
He thinks the potential for that scenario is overdone, and the Fed could continue to raise rates to control inflation while continuing QT.
"In the short term, the risks are that markets will continue to shift away from the position of the last few weeks, and perhaps begin to put some credence in the Fed’s claim that it won’t be cutting rates this year. A barrage of data that is about to hit for the beginning of the month should enlighten us further. While the banks’ crisis might not hurt economic activity that much, tighter money can be expected to have a big effect, with a lag. The most important place to look for that could be the corporate sector.
As Torsten Slok, chief US economist of Apollo Management, shows in this chart, capital expenditures (capex) have started falling. That can be expected to have a negative multiplier effect over time, which would be good for defeating inflation, but not so great for economic activity, or corporate revenues and profits:
And on the subject of profits, the latest National Income Profit Accounts data, compiled as part of the process of calculating gross domestic product, came out last week. This is a measure of corporate profits that eschews the smoothing that goes with the GAAP accounting used to publish companies’ accounts. They’re typically published, as below, with adjustments both for inventory valuation (IVA) and capital consumption (CCAdj). Over time, NIPA profits and S&P 500 GAAP profits do tend to move roughly together, because there are limits to the creative accounting that companies can do. But in the short term they can differ. It’s therefore not a great sign that NIPA profits took a dip in the final quarter of last year:
There are reasons for concern about the remaining three quarters of this year, many of which are not yet reflected in market pricing. For now, however, it looks as though the damage done by the banks has been overpriced. Absent big surprises in the new data — or fresh external shocks like the Opec+ agreement to limit oil production that spurred a rise of 8% for Brent crude at the Asian opening — it’s best to brace in the near term for bond yields to rise from where they are now, while more speculative investments give up ground. "
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As an investor, consumer staples sector and other defensive sectors will do well if and when the recession arrives.
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