TPW Investment Management

Weekly Musings

Friday Musings

V for Victory?

Happy (3 day weekend) Friday Musings,

V for victory, V for V shaped market bottom, or V for victim as market hurts most folks most often? So far the V shaped bottom has been in play (S&P is up 13.5% from Xmas eve close!) but lots of market segments hitting resistance levels - be careful out there.

Markets need further confirmation to go beyond just recovering from the disastrous December. So far so good as a Fed pause, China trade truce, and EPS beats (though low bar) have been sufficient. Going forward, the market will need to see China trade deal confirmation, Europe/China growth bottom, and continued confirmation that the Fed won’t “murder” the market as Bernake so eloquently put it.

What if this is NOT the end of a bull market cycle but rather the end of Fed tightening cycle which is already the longest on record? The US is at risk to both too strong growth = Fed hikes rates & too weak growth = EPS shortfall. The Rest of World would welcome growth.

US Political Risk is rising. While the tit for tat between the President & the House Speaker is childish the rising talk of impeachment is not. Watch the growing chatter about a potential rapid collapse in Republican support for Pres. Trump.

Speaking of Nancy and Donald the US Govt shutdown is not good for consumer confidence as the latest UM sentiment survey suggests (biggest decline in over 6 yrs). The consumer is key as consumption will drive production. Elsewhere, China’s policy push is to increase consumption while Europe's high wage gains and low unemployment support consumption.  A silver lining from the growth scare is the policy response which could elongate the economic growth path.

Look to Europe and Japan for DM laggard opportunities, and on pullbacks to LatAm equity for both growth (Brazil) and value (Mexico). In the US it is great to see how banks have traded this week. The market needs new leadership & if financials can give it that would be a plus. 

Watch debt markets closely. Overall debt refi amounts + QT + deficit financing worry a lot of folks. Market pressure to force the Fed to put QT on hold could be catalyst for a retest.

Enjoy the long weekend!

Jamie & Jay

James Gardiner