Obermeyer Wood Investment Counsel, LLLP’s Post

As we progress into the second week of July, the financial markets are on alert for Federal Reserve Chair Jerome Powell’s testimony regarding the economic outlook and recent monetary policy actions.   In addition, economic data releases include the US inflation rate and the Producer Price Index (PPI) for June.   Earnings reports are expected from PepsiCo and Cintas Corporation, along with updates from major banks like JPMorgan Chase and Citigroup.   With S&P 500 and Nasdaq indices at historic highs, investors will monitor these developments.

At Market Thinking we have just put out a combined Review and Preview of 2023 and 2024. Bottom line: The Macro was too bearish in early 2023, influenced by the poor performance of markets in 2022, and subsequent events supported our own view of slowing growth and inflation, but no recession and no second leg to a bear market. Nor any great easing of interest rates. From a macro viewpoint, we are relatively unchanged, but the strong rally in both bonds and equities in Q4 has left some (a lot) of Macro now as overly positive in early 2024 as they were overly negative in early 2023. In 2022 the call was to be out of the Magnificent 7, just as the call for 2023 was to be in it - although few active managers did both. This year, there is no pressing case for either, but instead a renewed case for Diversification - both within the US and internationally - as well as dividends and disciplined investing (rather than chasing memes and believing too much in narratives). Initially we suspect some small mean reversions as momentum fades - both positively and negatively - with (excess) cash providing underlying support at the bottom of trading ranges. Politics will be important, but from an investors’ point of view, outside of narrative management it will be the extent to which monopolies and ‘moats’ are challenged by populist politicians - shifting risk profiles. https://lnkd.in/evfGY9wx

The financial market is fascinating, where fortunes are earned and lost, ambitions are realised, and anxieties are faced. The mood of market players, bulls and bears, drives it despite its complexity. Let's analyze rising market bullishness, its ramifications, and a viable re-evaluation method. Bull Market in Full Swing The financial landscape indicates that we are in a bull market. The economy is booming, inflation is under control, and the stock market is rising, fostering optimism and confidence. Despite this favourable trend, concerns are developing. Bullish moods are widespread and becoming the consensus. This large number of bulls could upset the market and put investors in danger. Bull/Bear Ratio: A Sentiment Indicator Investor Intelligence The bull/bear ratio, a sentiment indicator, reached 3.54, its highest level since the bull market began. This ratio is mostly a contrarian buy signal when it falls below 1.00, but a ratio above 3.50 may imply a sell-off. Consumer Confidence Survey Consumer confidence surveys are another sentiment indicator. The index, which measures respondents' expectations for weaker stock prices next year, was 23.8% lately. Market bullishness is evident. Put-Call Ratio and Market Sentiment Another crucial attitude indicator, the put/call ratio, was 0.48, below its average of 0.60. This ratio favours day traders over long-term investors, yet it shows market confidence. Possible market meltdown Current market indications suggest a "meltup." A meltup occurs when retail investor investment drives market performance despite negative sentiment indicators. The Retail Investor and Equity ETF MegaCap-8 stocks are outperforming due to retail investor interest in equity ETFs. Equity ETFs boost these stocks' worth more than others because they make up a higher part of the market's capitalization. Re-evaluation Strategy Despite positive market conditions, be alert. A bullish attitude may cause market imbalances, requiring investment strategy reevaluation. Keep an eye on sentiment indicators and adjust your investment strategy as needed. To stay current on market trends and insights, subscribe to our newsletter: https://lnkd.in/ebbYFh7s.

At Market Thinking (and also at the more mobile friendly marketthinker substack - both are free to subscribe) we have published our Reveiw/Preview of 2023/24. Occam's Razor for markets is Momentum or Mean Reversion? 2023 saw powerful mean reversion in bonds in q4 and in a narrow, but dominant part of the Equity Market (the Magnificent 7) during H1. Both developed momentum in Q4 taking them up to and indeed past fair value and that is now fading somewhat, suggesting some Diversification opportunities this coming year - both within the US and internationally. Politics will dominate the narrative this year, but investors need to remain conscious of what pundits want to happen rather than what is most likely to.

Market Warm Up - 21/05/24 📰 📈 US Equities: - US equities started the week at all-time high levels; S&P 500 up 0.1% and Nasdaq up 0.7% on Monday. - Since mid-April, S&P 500 has risen nearly 7%, Nasdaq almost 10%. - Rally driven by hopes for Federal Reserve policy easing after encouraging inflation data. 📊 Economic Outlook: - US economy remains solid amid modest deceleration. - Aggregate economic data have fallen short of consensus, but actual economic activity suggests continued strong growth. - A soft landing is expected, which should allow the Fed to cut interest rates later this year and support corporate profits. 💼 Earnings Growth: - First-quarter earnings show broadening profit growth beyond mega-cap tech stocks. - Excluding one-off impacts in healthcare, S&P 500 companies (excluding Magnificent 7) marked the first quarter of positive YoY earnings growth since Q4 2022. - Continuous improvement in earnings growth should support equity performance in coming months. 🤖 AI Innovation: - AI is disrupting traditional industries; big tech expected to spend over USD 200bn in capex this year. - AI-related names and global tech sector forecast strong earnings growth: 20% in 2024, 16% in 2025. - Microsoft and partners launched AI-enabled “Copilot+” PCs with new low-power AI chips, offering nearly 20-hour battery life and on-device AI processing. 💬 Expert Commentary: - Paul Donovan: Yellen’s visit to Europe may discuss using frozen Russian assets to aid Ukraine, with implications for asset ownership security in a polarized world. German producer price inflation remains in deflation; consumer goods prices subdued at factory gates. - John Authers: Wall Street bears revising predictions, but long-term stock market remains expensive. Investor interest in weight-loss drugmakers is high, but ultimate winners are yet to be determined. 🔍 What to Watch (22 May 2024): - UK April CPI - US April existing home sales - FOMC meeting minutes 📉 Financial Disclaimer: This post is for informational purposes only and does not constitute financial advice. Please consult a professional advisor before making any investment decisions.

🚨 All Eyes on the Fed: Navigating the Monetary Policy Labyrinth 🏦📈 Today marks a crucial day for financial markets as investors eagerly await the Federal Reserve Board policy announcement and the subsequent press conference. This Fed Day is particularly significant, as it will provide valuable insights into the central bank's forward policy guidance and its assessment of the economic landscape. Key areas to watch: The framing of the economic rationale behind the ongoing pause on rates. Indications regarding the timing and scale of interest rate actions in 2024, along with the economic conditionality. Insights into the evolving perspective on the "terminal rate." The announcement regarding the reduction in the pace of balance sheet reduction. Market expectations have shifted dramatically over the past month, with the probability of zero rate cuts in 2024 now standing at 27%, up from a mere 2% just last month. This shift in sentiment underscores the importance of the Fed's communication in shaping investor expectations and market dynamics. In addition to the Fed's policy announcement and economic/policy messaging, today also brings the release of two critical pieces of data: The monthly JOLTS report, which will provide valuable insights into the state of the US labor force. The Treasury's quarterly refunding arrangement, mapping the expected Treasury bond issuance. Moreover, the latest ADP report has added another layer of complexity to the Fed's decision-making process. Private payrolls increased at a faster-than-expected pace in April, with companies adding 192,000 workers, surpassing the Dow Jones consensus outlook of 183,000. This resilience in the labor market, coupled with a slight moderation in wage growth, suggests that the economy continues to exhibit strength despite concerns about inflation and monetary policy tightening. As the Fed navigates this monetary policy labyrinth, it will need to carefully balance the competing objectives of controlling inflation and supporting economic growth while considering the robustness of the labor market. The Fed's forward guidance, along with the incoming economic data, will shape the trajectory of interest rates, inflation expectations, and overall market sentiment in the coming months. Investors must remain vigilant and adapt to the evolving market conditions, as the interplay between the Fed's policy stance and the resilience of the labor market unfolds. The coming hours and days will be crucial in determining the near-term direction of the markets and the economy. What are your thoughts on the Fed's upcoming announcement, the strong private payrolls data, and their potential impact on the markets? Share your insights in the comments below! 💭 #FederalReserve #MonetaryPolicy #InterestRates #PrivatePayrolls #LaborMarket #EconomicOutlook #Investing #FinancialMarkets

A mixed bag of data out of the US has increased uncertainty about the economic and market outlook. However, rather than overemphasizing a few data points, investors should rely on several core assumptions about the economy, the Federal Reserve, and investor positioning for investing guidance. All of which, in our view, remain positive. The combination of trend-level growth and further disinflation should be supportive for risk assets. The specific level of economic growth and the pace of disinflation matter for absolute investment returns, but financial markets should have a modest tailwind as long as these attributes generally hold. While confidence in the disinflation narrative took a hit last week, it appears that a one-time "January effect" of annual price increases for specific services inflated the CPI data, as did owners' equivalent rent. What's more reassuring to us is the continual moderation of wage growth, with the employment cost index and the Atlanta Fed wage tracker at their lowest levels since the end of 2022. Overall, the US economy remains in good shape, and investors shouldn't let Goldilocks data be the enemy of good data when evaluating the outlook. Fed rate cuts remain on the table. Market pricing for the number of Fed rate cuts this year has gone from nearly seven at the start of this year, to about 3.5 now. But it is important to note markets are also trading on the expectation that the central bank will step in if growth data weakens sufficiently. This is evident in how the relative performance of small-caps versus the Nasdaq 100 has closely tracked market pricing for fed funds rates—the sooner the market expects the Fed to start cutting, the better small-caps have done on a relative basis. We continue to believe it's less important if the start of rate cuts may be months away or that there may be only three this year. For the market outlook, it's sufficient that the Fed is biased toward rate cuts. Investor positioning is elevated but not stretched. There is fear of a positioning-led pullback as the S&P 500 has risen 21.5% since the end of October. While that is certainly possible, we think there's plenty of dry powder for investors in aggregate to buy a 5–10% dip. Discretionary institutional investors have been buying call options to get upside exposure while also selling volatility, but they have not been aggressively chasing the rally by adding to existing allocations. Retail investors, meanwhile, have added over USD 120bn to money market funds this year, versus slightly negative net flows into US equity funds. So, even if the magnitude of returns will depend on the specific details for growth, inflation, and rate cuts, we see a fairly healthy US macro environment that is directionally positive for financial markets. For investor positioning, we continue to like quality and small-cap stocks.

Global stock markets have recorded strong gains at the start of 2024, indicating an optimistic outlook. According to analysts, the narrative in the coming months will be determined by inflation and the Federal Reserve's next move. Paradigm Wealth Management is dedicated to balancing our clients' needs and portfolios with the current economic environment. Read more about our 1Q 2024 Financial Market Commentary and Outlook by clicking the link below. https://lnkd.in/giDDAQ-D

Happy New Year everyone! As we enter 2024, it's productive to reflect on last year's insights in order to properly prepare for the upcoming year. Financial assets rebounded in 2023 and the U.S. economy proved more resilient than many pundits expected while inflation continued to moderate. Here's a quick 2023 recap: https://lnkd.in/gtMgRpHR

As we continue to get settled into the new year, staying aligned with a thorough economic outlook can help financial professionals reach their financial goals in 2024. In his recent article, Will Daniel of Fortune elaborates upon 2024 expectations and predictions for the economy, bringing in valuable insights from our own Global Markets Strategist Crit Thomas, CFA, CAIA and other industry experts. The article analyzes interesting 2024 market predictions and explores the likelihood of 2024 rate cuts from the Federal Reserve and how it might impact the broader markets. To check out the full range of ideas, read the article: https://lnkd.in/gYn_uQkf #DistinctivelyActive #ActiveManagement #investing