This comment was recently published by money managers, research firms and market newsletter writers and was edited by Barron’s.
P / E under pressure
March 17: Chances are that the low of March 8 in the
S & P500
marked the end of panic attack no. 74, triggered by the invasion of Ukraine. You
it fell into bear market territory on Monday 7 March, from its record high in November. A week later (the last Monday), the
fell into a bear market. Both mobilized intelligently on Tuesday and Wednesday.
There will certainly be more panic attacks this year. Their catalysts are likely to be less geopolitical in nature and more tied to higher and longer inflation and the Fed’s weak response to this problem. Like this [we] expect the pressure on the forward P / E of the S&P 500 to continue. We believe investors can compensate for this by overweighting energy (as a hedge against inflation), financials (as a hedge against rising interest rates) and information technology (as a bet on the Roaring 2020s scenario). .
We also recommend overweighting SMidCaps as their valuation multiples are already very low. How about overweighting Europe in case Putin’s war ends soon? This makes sense, even if we would continue to overweight the US relative to global markets. Within a global portfolio, we would redistribute some of the market cap share from emerging markets (which are not doing well when the Fed is tightening) to Europe.
– Ed Yardeni
Delayed energy transition
The Sovereign Councilor
Sovereign wealth management
March 16: With the global energy market in disarray, countries around the world will now have to rethink their energy strategy, as the immediate shift from carbon-based to green energy has been indefinitely delayed. This transition will take decades to complete as any thoughtful planning process would come to an end. We have already been in this conversion for over a decade and are still only about 3% more than the total energy provided by renewable sources. Instead, investors should seek governments to change their strategy to ensure reliable carbon-based supplies for immediate use.
Two transport choices
The institutional vision
March 16: Dow Transports has just exited an 18-month base in relative strength after breaking through a 13-year downtrend. Historically, the strength of transportation has been related to the bullish action in cyclical stocks.
We are starting a Buy on
JB Hunt Transportation Services
[ticker: JBHT]. I wish you had “joined the party” of this logistics company earlier. But JB Hunt’s advance began to accelerate. He places a closing mental stop @ 182. This is one of the best long-term relative strength charts within the cyclical sector. JBHT is just now standing in the way of a huge 30 year foundation / consolidation. You plan a lot more time and outperformance rate in the years to come.
[MATX] is a new purchase recommendation. Note that each consolidation was faster than the previous one. This is typical of very strong progress. Place a closing mental stop @ 84. MATX boasts one of the strongest relative strength charts compared to the
S&P 500 index of equal weight
! It was only last August that relative strength soared from a whopping 23-year base. Matson’s relative strength started its secular bull market just seven months ago. This means that its bull market has many years of life ahead of it.
The Fed’s narrow path
Announcement of the FOMC
capital of Texas
March 16: The first experiment during the pandemic involved sending money from Congress to citizens and the Federal Reserve which supported the markets by lowering rates. Sending money to citizens has added fuel to already solid demand. Meanwhile, supply chains have been closed by order of the government. The Fed’s new experiment is whether rising interest rates, long used to “cool” an overheating economy, will now be an appropriate tool to combat supply chain inflation. We believe the Fed has a narrow way to go this year. The risk, in our view, is that if the Fed raises rates at every meeting and cuts its balance sheet too quickly, it could increase the vulnerabilities of the recession into the coming year. Sure, none of our indicators are currently in recession territory, but we remain vigilant.
Time to buy real assets
March 15: From an investment perspective, the era of disinflation continues as a byproduct of globalization is likely behind us because most of the cost benefits on the labor side have been extinguished. We suggest investors consider adding a real asset component to their portfolio mix. Real assets, such as commodities and commodity businesses, inflation-protected stocks, commercial real estate, and stocks that tend to move with inflation, are natural hedges against inflation. Investors should also consider reviewing their holdings in emerging markets. The changing landscape of global trade creates winners and losers. Accordingly, we advise investors to consider active management of emerging markets rather than exchange traded funds that passively track the emerging markets index.
Economically and commercially, globalization has driven decades of growth and profitability with low interest rates and little inflation. Like most economic phenomena, that pendulum swung too much. We expect, and must prepare for, some sort of reversal which, given the economy and human nature, will likely swing too far in the other direction.
The Covid crisis in China
Weekly notes on the Chinese economy
High frequency economy
March 14: The massive Covid epidemic in Hong Kong, both the highly transmissible Omicron variant and the virulent Delta variant, has definitely spread to the mainland. Since this morning Shenzhen has been closed for at least a week. Large areas of Shanghai have been closed, schools have been closed, and access to and exit from the city has been restricted. Other megacities under lockdown include Jilin and Changchun. Shenzhen is special, though: it’s the center for mega electronics assembly companies like
which announced the closure of operations for
including iPhones. Huawei and Tencent also have headquarters and operations there. We cannot think of any risk to the global economy, excluding nuclear war, that is greater than the risk of a Covid epidemic in China disrupting industrial production. Countless manufacturing supply chains pass through China. Still, it seems to us that the virus has already come out of the bottle.
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