Market returns

A very strong bounce back in the latter half of July, particularly with the perceived Fed dovishness, that lit markets in general and growth strategies in particular.

In commentary Chairmen Powell did away with forward guidance, and pointed to emergent weakness in several economic and market indices. The takeaway for the market was “hawkishness” is on hold, and maybe the doorway to “dovish” is open.

The market believes that inflation will be transitory, and thus the Fed doesn’t have to go so hard to wring it out of the system, and Powell making a seemingly congruent admission reduces the likelihood that the Fed overtightens and triggers a recession.

So half the story here is about the Fed not ruining the party and the other half is about lower rates (and associated lower USD) reigniting growth and commodity stocks.

Credit spreads also moved tighter, which is consistent with a dovish interpretation.

We think the market has gotten this wrong.

The interpretation is off. He wasn’t being that dovish. The employment cost index (wages data) and PCE (inflation data) that came out on Thursday and Friday don’t give room for a dovish tilt.

The Fed will stay on the hawkish path, for a little while longer, we think. The market has gone too early.

As such, we are inclined to fade the recent market strength, and are waiting to see where it levels out, before making a change.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.