Market Notebook

As measured by ticker SPY, equity prices declined during the last week while bond prices, as measured by ticker BND, moved higher.

From a technical perspective, equity prices broke lower through support, establishing a downward trend. Given the weak price action during the two weeks leading to this point, a break lower is not surprising.

In terms of narrative and sentiment, market participant concerns regarding inflation and Federal Reserve policies designed to combat inflation appeared to contribute to the negative sentiment. Market participants appear to believe that corporate profits will be negatively affected over the near term, and this seems likely to be the case.

As previously mentioned, pessimists appear to be pricing equities at the moment. At some point, optimists will regain the upper hand, and they will be pricing equities once again. Since market participants tend to be forward-looking, equity prices are likely to improve before it is clear that corporate profits will improve. This is the semi-literal definition of forward-looking. Do not lose sight of the fact that when pullbacks, corrections, or bear markets occur, they tend to create opportunities for long-term investors. If one were holding a well-balanced and diversified portfolio as this downturn began and one continues to hold it, don’t lose faith. Simply be prepared to take advantage of opportunities as they present themselves.

Since equities appear to be established in a downward trend, it seems prudent to avoid most if not all equity purchases unless necessary. Ideally, one would see some momentum recovery before continuing with equity purchases.

Regarding bonds, one could say they had a good week with BND finishing in the green. Bonds seem overdue for consolidating price action, and it certainly would be welcome if last week’s gains continued into next week. Unfortunately, bonds are still established in a technical downward trend, and therefore, it seems prudent to avoid bond purchases unless necessary.

If you are working on your to-buy lists, consider looking for quality companies in beaten-down sectors. Technology and growth stocks have borne the brunt of recent negative price action, and it may be possible to find some gems among the rubble. Regarding a fixed income buy list, some notes excluding corporate and corporate high-yield might become interesting should prices consolidate. The motto for this work might be, “be prepared but be patient.”

Please note that a section titled “Bear Market Statistics” has been added to the notebook. Also, note that ticker QAI has replaced ticker ALTS in the alternatives section of the notebook. ALTS has discontinued trading.

All the best in the week ahead.

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.