Market Notebook

PRICE ACTION:
Equity prices, as measured by ticker SPY, closed lower on the week, while bond prices, as measured by ticker BND, closed higher on the week.

TECHNICAL ANALYSIS:
Last week’s price action appeared to confirm that SPY has transitioned from an upward trend to the start of a new downward trend. The hopes for entering consolidation were dashed as SPY smashed lower through near-term price support levels.

BND appears established in an upward trend.

SENTIMENT:
Once again, market participants appeared focused on near and medium-term corporate profitability as factors in the real economy begin to affect profitability.

It appears that bond prices are indeed decoupling from equity prices. This presents a potential near-term opportunity to make opportunistic bond purchases.

ECONOMY AND FUNDAMENTALS:
Economic indicators within the Market Notebook remain mixed. Regardless of whether a technical recession occurs, it seems likely that real economic activity will slow over the next few months as the Federal Reserve continues to act to contain inflationary pressures.

IMPORTANT ARTICLES:
On December 13th, Howard Marks of Oaktree Capital published a memo titled “Sea Change.” The memo is well worth one’s time to read. To quote Marks, the conclusion of the memo is as follows:

“We’ve gone from the low-return world of 2009-21 to a full-return world, and it may become more so in the near term. Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Lenders and bargain hunters face much better prospects in this changed environment than they did in 2009-21. And importantly, if you grant that the environment is and may continue to be very different from what it was over the last 13 years – and most of the last 40 years – it should follow that the investment strategies that worked best over those periods may not be the ones that outperform in the years ahead.”

NEXT WEEK:
Be on the lookout for specific opportunities in bonds.

It may be prudent to avoid equity purchases unless necessary while momentum remains negative.

All the best during 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.