Perspectives

Equities were sharply lower last week (S&P 500 -3.3%) as stocks made their lowest close of the year. The week was capped off by a big Friday selloff. Some suggest risks are skewed toward a near-term rally given factors, including weak sentiment, low positioning, and oversold conditions. Treasuries were little changed, pausing after the big backup in yields over recent weeks. Best sectors were materials (-0.8%) and technology (-1.3%); worst sectors were consumer discretionary (-7.9%) and REIT… View More

U.S. equities were down last week, with the S&P 500 falling 2.7%. The week’s slide was broadly attributed to increasingly hawkish central bank commentary by the Fed and the ECB. Q1 earnings so far are outpacing expectations. The only positive sectors were REITs (+1.2%) and consumer staples (+0.4%); the worst performing sectors were communication services (-7.7%) and energy (-4.6%). 2020 saw both supply & demand shocks as health concerns mounted. But fiscal & monetary support were … View More

Corporate Tax Reform Worked Revenue is surging, exceeding what CBO and critics predicted By The WSJ Editorial Board April 19, 2022 Democrats are still looking to raise $1.6 trillion in new taxes this year, and even Joe Manchin says he’d support a corporate tax increase. The West Virginia Senator might reconsider if he looks at the actual revenue results of the 2017 tax reform that cut corporate tax rates. Reform has been a winner for the economy and federal tax coffers. Remember the claim… View More

U.S. equities were lower last week, with the S&P 500 down 2.1%. (Small-cap stocks were modestly higher.) Some bullish talking points didn’t get much market traction, including peak inflation, better supply chain trends, and consumer resilience. These positions were overshadowed by fear around inflation, supply chains, and geopolitics. Best performing sectors (and the only ones positive) were materials (+0.7%), industrials (+0.4%), energy (+0.3%), and consumer staples (+0.2%); worst perform… View More

When interest rates go up, many analysts start to worry about recessions. That's not wrong to do, after all Federal Reserve rate cycles are important. Lately, the market has settled on expectations for a total of about 2.25% or more of interest rate hikes this year. The result is a jump in many longer-term yields. The 10-year Treasury yield is 2.77%, while the typical 30-year mortgage has climbed from 3.2% in December, according to Bankrate.com, to 5.1% recently. So, some analysts think that a … View More

The S&P suffered its first quarterly decline since the depths of the pandemic in Q1 of 2020 (-5.0%). Growth (-8.6%) meaningfully lagged value (-0.6%). The biggest development in Q1 was the dramatic repricing of the Fed rate hike path and expectations for an earlier start to and more aggressive balance sheet runoff phase. Late in the quarter, markets priced in a ~80% probability of a 50bp rate hike in May and ~200 bp in cumulative hikes by the end of 2022 following the 25 bp liftoff at the Ma… View More

Stocks finished higher again last week (S&P 500 +1.8%). The biggest story discussed was the hawkish Fed policy shift (lots of discussion around 50bp Fed hikes), pushing bonds lower and stocks higher. Earnings discussions were generally upbeat. Best sectors were energy (+7.4%) and materials (+4.1%); worst sectors were healthcare (-0.2%) and REITs (+0.4%). SOME PERSPECTIVE ON FOSSIL FUELS With the standard of living we enjoy in the U.S., it may be difficult to imagine that there are currentl… View More

Rumors of War Negotiations, Lower Oil Prices, and Predictable Fed Lift Stocks U.S. stocks had their best week since November 2020, with the S&P 500 +6.2%. Oil fell for the second week in a row. The themes cited included oversold conditions, depressed sentiment, cooling commodities, overstated recession fears, and China’s statements about market support. The best sectors were consumer discretionary (+9.3%), technology (+7.9%), and financials (+7.1%); the only sector closing down was energy… View More

For econometricians and other expensive experts, it remained a mystery why a quintupling of the assets on the Fed's balance sheet between 2008 and 2014 led to ever greater securities prices and no appreciable increase in the prices of goods and services. In a classic case of a remedy being the hair of the dog that bit you, the solution for many central bankers was to double down on policies that did not work as intended. Other central banks, like the Bank of Japan, went a step further by adoptin… View More

As expected, the Federal Reserve raised short-term rates by one quarter of a percentage point (25 basis points) earlier today, the first rate hike since the end of 2018. Even more important, the Fed signaled a new level of hawkishness in terms of future rate hikes as well as Quantitative Tightening. The "dot plot," which show the pace of rate hikes anticipated by policymakers, suggests the median Fed official thinks short-term rates will go up 1.75 percentage points this year, which would be co… View More