Due to the many distortions stemming from pandemic related developments, it is often difficult to “properly” decipher economic data. Changes in the economic environment are often subject to very rapid changes. We could soon be entering a period where changes might accelerate, leading to surprising outcomes. Investors should keep an open mind and maintain a “flexible” mindset.

For the time being we are maintaining our basic investment approach as expressed in last week’s commentary. We continue to prefer high quality stocks that offer good balance sheets, as well as relatively stable cash flows and profit margins. We prefer a global diversified portfolio for long term investors. We continue to stress that stock selectivity in this current environment is of paramount importance. We forecast continued financial markets volatility.

We continue to remain concerned that there could be more disruptions stemming from issues relating to smaller regional banks. Hopefully we will develop a clearer picture of credit availability as regional banks report their earnings, reserve allowances and their proclivity to lend. We found it striking that uncertainties surrounding consumers’ year ahead expectations appear to sometimes mirror fixed income volatility even while their longer term expectations remain well anchored generally.
We expect the Fed to hike the federal funds rate by 25 bps at its next meeting and then “pause” for quite “some time.”

The cracks in the high inflation, tight labor market and relatively robust economy narrative have begun to accelerate seemingly. In this context, we were reminded of Linkin Park’s song “Castle of Glass.”