edited by Michelle De Michelisinvestment manager Framework asset management
However, I remain surprised by the strength equity has shown so far this year, especially given that the widely expected rate cuts have not materialized.
So why aren’t rates falling despite the Fed’s lack of support?
Apparently, the operators are still discounting the good situation in the US economy, which, despite the high pace, is more than flexible, also considering the profit of the last quarter. A “gold economy” of sorts, albeit in the context of higher inflation. Obviously, not everyone thinks the same, so much so that there are some important managers who, however, insist that the situation is not so rosy and that we will witness a cooling of the main economic indicators in the next six months.
In support of this thesis, we can confirm that during recent conferences, many managers of listed companies, trying to maintain profit margins, expected cost reductions in the near future, which will inevitably be reflected in the labor market. Therefore, it should adversely affect the strength of American consumers, which has so significantly supported the cycle, as a result of which the virtuous circle (strong labor market/high consumption/high profits) that gave wings to the parity of the markets will be stopped. .
While some signs are beginning to emerge, every bit of bad news is being interpreted positively as we immediately think about the Fed’s tapering approach.
Warren Buffett recently pushed his holding company’s liquidity to an all-time record, just as the average liquidity of American managers is at an all-time low. This fact usually occurs historically before corrections.
If we find ourselves on the eve of a bearish phase, I honestly have no idea to the extent that I continue to be agnostic about share prices, limiting myself to observing their strength without forgetting to use some protection. are not very expensive.
However, I notice that when US 10-year yields go above 4.6%, even the S&P 500 gets nervous, which confirms to me that the real risk remains inflation.
And since we’re talking about inflation, we can’t help but look at crude, which has risen in several sectors and could be the third wheel that has broken the decorrelation between equity and bonds. We’ll see if Warren Buffett was right this time.
