Market Notebook

by | Jan 16, 2022

Discussion – 

Both equities and bonds retreated last week, with bonds suffering a technical break lower from recent consolidation. It appears that bond market participants are concerned that the Federal Reserve will need to move more aggressively than previously anticipated to stem inflationary pressures. This same line of thinking may be responsible for some of the pressure on equities. Speculative issues including tech names with stretched valuations fared worse than less speculative equities.

The damage done to equity pricing on a technical basis, although seemingly painful, was not particularly significant. However, the damage done to bonds was significant, with bond prices breaking lows previously set around March of 2021. As previously stated, it is likely prudent to remain underweight bonds for now. Regarding equities, as the price of equities goes lower, certain issues are becoming opportunities to buy. The primary question is, how much of a discount to recent prices is enough?

Volatility and the retreating of portfolio values are natural to market participation. The critical thing to remember is that retreating prices can provide significant buying opportunities for long-term investors.

All the best.