Market Notebook

by | Dec 4, 2022

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND, closed higher on the week.

SPY and BND appear established in an upward trend.

Over time, as market participant consensus converges on the idea of a shallower rate hike path by the Federal Reserve, attention is likely to turn toward corporate profitability. How well will corporate profits hold up in a high inflationary environment with elevated interest rates? Equity prices are likely to depend on the answer.

An ideal scenario would be rapid bond price gains as the Federal Reserve dials back the pace of interest rate hikes, combined with slow equity gains, as sentiment towards equities gradually improves. The above scenario would allow a portfolio to tilt toward equities. Uncertainty creeps into the execution timing of any portfolio tilt depending on how well corporations adapt to near-term economic conditions.

The economic indicators followed within the Market Notebook suggest a recession in the real economy is possible but not a foregone conclusion. Signals appear mixed. The best interpretation might be that economic stresses exist, but the Federal Reserve and corporate management are respectively, and adequately addressing their challenges.

Equities and bonds have had recent, sustained moves higher. Pullbacks from current levels would not be surprising.

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.