US macro
A very similar note to those written over the past few days. But, it is a message worth keeping in mind.
Certainly there is some negative high frequency data (monthly, weekly) out for the US.
ISM Services, out overnight, shown below, is looking very similar…
to ISM Manufacturing (i.e. rolling over, shown below)…
and the weekly initial jobless claims data is on the way up.
Equally, this is why we’ve got the “recession scare”, commensurate with risk-off. For the moment, it is unfortunately indistinguishable from the Fed’s stated intent / desired outcome of restraining growth and hitting the financial conditions channel.
Our view: there are good reasons to be bearish (the above) and good reasons to be bullish (valuations, general labour market strength, belief that supply chains and the magic of capitalism work, trust that the Fed ultimately is a good manager of the economy, and will back off on tightening appropriately as and when required).
We bought equities on various market dislocations (EU equities post UKR-RUS, EM post China tech/property crackdown, Japan post the Yen collapse, S&P500 when it joined the sell-off), and in each instance, those markets were some 18-24% off at the time…
…but it is unclear if that will, in hindsight, prove “too soon”.
Equally, we’ve got a portfolio that is 30% fixed income, with much of the recent fixed income purchases at yields closer to 4% (AGBs mainly) and that gives tremendous firepower if corporate earnings and profit margins roll over from here (e.g. the market multiple has de-rated, materially, causing P/E compression, but if EPS goes south, we likely face weaker markets from here).
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