Our Thoughts
Up and to the right?
There’s no doubt that 2025 will bring both expected and unforeseen risks. But on the flip side, there are also many promising opportunities ahead.
The current, administrations potential policies on tariffs, taxes, immigration, government spending, Business regulation, inflation, and views on interest rates do have potential positive effects.
Assuming they can all get done together and quickly.
However, if not, they can be considered foreseen risks in their own right. The unforeseen risks, however, are what we put our best foot forward to prepare for.
What’s in store for Q4
Uncertainty is ramping up. Most notably, expanding geopolitical tensions and US election rhetoric, extreme market valuations, and unsustainable national debt.
Recession Still on the table?
If the consumer is hurt, they spend less. When consumers spend less, the economy weakens and businesses reduce their capital expenditures leading to layoffs and spending cuts. Former New York Fed president, Bill Dudley, refers to this as a “feedback loop”.
End of the year rally?
Israel has a key position in the region, it's highly likely that we'll see energy prices impacted by the conflict, which has the potential to increase inflation.
Couple this new war with the ongoing war in Ukraine, and OPEC production cuts, a large and growing demand for oil and gas products is adding to renewed upward pressure.
Normal Pullback or Deeper Correction?
With the Fed's perceived strong arm on monetary policy and the recent US debt and banking institution downgrades (possibly more on the way), a continued decline in leading economic indicators, and the Chinese economy blowing up, investors are suspicious that the current path will produce any positive outcome.
Is the Bull Back on?
There are many positive developments taking place in the capital markets keeping market participants positive for the future outlook. Yet, at the same time there is equally enough negative economic data to keep institutions more cautious as they deem current valuations extended.
Will Spring Awaken The Bear?
The Fed does expect a "mild" recession in 2023 according to the recent Fed minutes. We can only hope that "mild recession" is not similar to the "transitory inflation" scenario the Fed touted in 2021.
Bank runs and 54% chance of recession?
If you recall, in last month's market outlook I remarked that I am cautiously optimistic (read here). I likened my cautiousness to the yellow flag that is waived in a formula one race.
Reduce speed, do not overtake, and be prepared to change direction.
Is the big BEAR finally hibernating?
While the yield curve and leading economic indicators have been signaling a recession, other data such as the lagging indicators that the National Bureau of Economic Research (NBER) tracks to actually call a recession has held up, as of right now, AMAZINGLY well.
As goes January, so goes the year
As the debate on the direction of the US market is underway, signs of bullish divergences are starting to show internationally.
Operation Break Stuff?
Take a look at the FHFA House Price Index from Q3 2022 (Q4 out in January). According to Nataliya Polkovnichenko, the Supervisory Economist for the FHFA, “House price gains have substantially disintegrated in the 3rd quarter with a pace comparable to the one we observed during the great recession”.
Stop Talking About Stocks.
Honestly, I don't want to talk about stocks this Thanksgiving.
Not because of the brutal year we have had, but because I believe that the fragile state of the treasury debt market should be the real topic of discussion.
Debt rules the world. Without it, companies do not grow... We do not grow. And when it does not function properly, it has the potential to throw some serious punches at all asset prices.
Red October?
As I am sure you are aware, rising interest rates, the extremely quick rise of the US dollar (see chart), and inflation are all trending headline topics currently.
All three are connected and even worse, they are playing a big role in pushing the WORLD into recession.
The Market Rebounds…PSYCH!
Growing up my sister and I would play a game which had a single sole purpose. Bamboozle the other player. Perhaps some of you may have witnessed it or engaged in it yourselves... The game was was called "psych!"
Did the Market Just Bottom?
There is only one investor, no longer living among us, that time and time again successfully called and navigated every top and bottom pretty much perfectly. His name?... Bernie Madoff. Ba dum tss!
And we all know how that story goes.