7 February 2023 - Thoughts on the Market

Today I am going to provide a brief update. In my last write-up, I pointed out the nearly overwhelming challenges facing the equity markets right now. The January jobs report reinforced my negative outlookon equities, as the Fed will have a brutal challenge to navigate a truly soft landing in the economy. Earnings are coming down, interest rates are still climbing, the job market is the tightest it has been inover fifty years, and financial conditions have eased dramatically over the past three months with the stock market and bond market rallies. This is an awful environment for the Fed, and it is likely that they will be forced to hike rates even higher than first expected. Please remember that nearly every recession in the U.S. has been preceded by a period of very low unemployment levels. The likelihood of a Fed cut this year, barring a massive exogenous event such as an attack of Taiwan – or perhaps a blockade – by China, is increasingly unlikely.