Ample analytical energy has been expended in the great debate about what kind of “Landing” the U.S. economy will experience in 2024. Will it be a “Soft Landing” where growth remains relatively resilient as inflation falls? Or a “Hard Landing” where growth...
For a considerable time, international stocks have been kicked to the side by the market’s infatuation with U.S. large-cap technology companies. International markets represent 194 countries, are responsible for over 84% of global GDP, comprise over 95% of the world’s population, and account for roughly 40% of the world equity market capitalization.
When considering the range of possibilities in private credit—primarily those in the private sector via investment funds as opposed to traditional banking channels — it’s beneficial to understand why companies are choosing to remain private and why access to traditional bank capital has become more challenging.
We started 2023 with a mantra from Goethe: “Enjoy what you can, endure what you must.” After a roaring rally in equities and a much-improved showing from fixed income compared to 2022’s weakness, 2023 has been a year of far more enjoyment than enduring.
We will continue to monitor financial markets very closely so that we can better determine the sustainability of the recent more broad-based rally. We could be quick to change our opinion depending on new developments. We expect many surprises are possible at any time. This is not the time for complacency. We find ourselves always returning to our view that the hallmark of the period since the onset of the pandemic is one of “rapidity of change.”
persistent and “sticky.” We trust that evidence of slowing wage growth and a “cooling” U.S. labor market has begun to emerge. In last week’s commentary, we highlighted the reasons why we thought that the Fed most likely would “skip” hiking the federal funds at its June 13-14 meeting. Financial markets mostly have priced in now this probability, and the consensus now is that a July hike is most likely. Nevertheless, a lack of conviction has fostered many divergent opinions. The minutes of the Fed’s last meeting continue to show that the Fed’s staff continues to “anticipate” a mild U.S. recession. Many analysts and investors seem to agree. Others – including Fed chair Powell – think a recession can still be averted.
We are inclined to give the benefit of the doubt as to the sustainability of the broadening out of the U.S. stock rally as shown on Friday. We will continue to monitor financial markets very closely for more “clues.” The “true” bottom line is that “No One Knows.”
We view NVDA’s narrative this week as a “game changer” in respect to a risk-reward analysis in evaluating growth stocks. This is especially true for AI related stocks. This could make many investors less willing to sell such stocks and more willing to buy such securities. This could also limit the downside to such stocks. Given the large capitalization of many of these securities, this could also limit the downside of many “cap weighted” stock averages.
After the U.S. debt ceiling is resolved we expect issuance of a very large amount of Treasury securities that should “drain” liquidity from financial markets. In our opinion, less liquidity should increase volatility. After analyzing Powell’s and Yellen’s comments towards the end of this week we now feel more strongly in our forecast that the regional banking crisis is not over and that we foresee further tightening of credit conditions.
Given all of the uncertainties surrounding economic growth rates and possible inflation trajectories, we were not surprised that the Fed decided to cease its forward guidance and substitute instead a data dependent approach that provides a “blank space” where the Fed can “write” its next policy decisions. The continuing instability of regional banks is but one of many uncertainties confronting investors.