Thought Leadership Resource Center
U.S. equity markets have experienced a noticeable uptick in price volatility as the summer of 2024 winds down. The shift began in early July when several of the large tech companies sold off sharply. These same stocks that had led the equity rally this year managed to recover a large portion of those summer losses.
Read MoreWe are only a few trading days into the month of August and already it feels like an entirely different environment compared to the one we have enjoyed for most of the year. While economic reports have been flashing signs of inflation for many months, the equity markets have spent most of the year ascending to new record highs.
Read MoreWe are pleased to share with you the Clearwater Capital Partners Outlook 2024 Mid-Year Update report entitled:
“Bulls, Bears, and Blurred Horizons”
Exactly two years ago the rate of inflation peaked at a year-over-year rate of 9.1%. The Federal Reserve responded to the spike in consumer prices by raising interest rates 11 consecutive times over a period of just 16 months. The Fed’s pursuit of tighter financial conditions was meant to bring the rate of inflation down to a 2% target level – a goal that remains elusive with prices continuing to rise at a pace of about 3.3%.
Read MoreAs I have repeatedly observed, the rate of inflation has been the dominant economic story of the year. Consumer prices are now about 20% higher than they were when inflation began to heat up and, while the rate of continuing inflation has fallen from peak levels experienced in the summer of 2022, it remains well above the Fed’s 2% target and continues to pressure consumers.
Read MoreWelcome to a new calendar quarter. With the month of March coming to an end, the S&P 500 posted its fifth consecutive month of gains as corporate earnings remain resilient and the consumer continues to spend money. The index is now higher by about 10% for the first quarter and a staggering 28% since the rally began in late October of last year.
Read MoreEquity markets in the U.S. continue to press higher. Less than a month ago, the S&P 500 crossed 5,000 for the first time in its history and since the low last October, the index has been up over 1,000 points. Semiconductor manufacturer Nvidia reported a blowout fourth quarter earnings report and optimism over artificial intelligence keeps pushing stock indices to all-time highs.
Read MoreAs 2023 draws to a close, I am encouraged to observe that the year has turned out much better than many, including myself, had expected. The economic slowdown, signaled by several traditional indicators such as the Leading Economic Index (LEI), has not yet materialized. In fact, the third quarter growth in GDP far exceeded expectations and an increasing number of market strategists are shifting their perspectives to a “soft-landing scenario” in which the Federal Reserve’s aggressive and historic tightening cycle will succeed in reducing inflation without crushing the economy.
Read MoreIn late October both the Nasdaq and S&P 500 entered correction territory following a weak third quarter for equity prices. The reasons behind falling stock prices have been higher interest rates and weak earnings guidance from corporate executives worried about the threat of an escalation to the war in the Middle East. By the end of the month, the S&P 500 closed about 10% below its recent peak in late July.
Read MoreOver the past several months I have warned of potential weakness in equities following a rally earlier in the year that saw the S&P 500 rise by as much as 20% from the beginning of the year. It appeared that valuations were being stretched as the market breadth narrowed. In other words, equity prices were rising faster than corporate earnings and the gains had become dominated by only a handful of mega cap names in the communication and information technology sectors.
Read MoreWith another summer winding down and kids heading back to school, we are entering the month of September with a bit of trepidation. Not only have U.S. equities rallied this year against the backdrop of declining earnings, but September has also historically been the worst month of the year for stocks. If investors could choose to skip past any month based on the historical action, September would be it.
Read MoreA couple of weeks ago Clearwater Capital released our full Mid-Year Update report of our Outlook 2023. Even as the U.S. equity markets continue to rally, we remain cautious. Our base case calls for a short and shallow recession to develop later this year, or early in 2024.
Read MoreFollowing the most aggressive monetary tightening cycle in the past 40 years, stock prices are approaching the threshold of a new bull market - rising almost 20% from the bear market low last October. A cursory look at U.S. equity price movement so far in 2023 would suggest that stocks have been able to shrug off a wide range of troubling issues.
Read MoreThe Federal Reserve and Chairman Jerome Powell will hold its latest policy meeting on Wednesday, May 3rd. The central bank is largely expected to deliver on another 25-basis point hike to the Fed Funds rate, bringing the benchmark rate to a range of 5.00% - 5.25%. This would mark the 10th straight rate hike this cycle and take the Fed Funds rate to its highest level since 2007.
Read MoreThe most significant challenge for the U.S. economy has shifted from an uncertain path for monetary policy to a potential banking crisis and associated issues connected with tightening credit conditions.
The supply of bank credit is an important driver of macroeconomic outcomes and a contraction in credit availability serves to further slow already decelerating economic activity. Banks will likely raise lending standards in response to the current set of problems and the pace of new loan origination, for businesses and consumers alike, will decline.
Read MoreThe new year has begun very much as we had expected with inflation proving to be more sticky than many investors had expected, and another bear market rally in equities is unraveling, just as the seven prior such rallies have.
Read MoreOur economic outlook has not changed much in recent weeks. We expect the Fed’s tightening of monetary policy will keep equity market volatility high and range bound into 2023. Any indication that the Fed is contemplating a pause in early 2023 will drive sharp rallies. Any data reports that suggest inflation remains stubbornly high will trigger selloffs in equity markets. This reality was on full display as November ended and December began.
Read MoreWe have long promised our clients that when the facts change, our outlook would change. This said, our base case has shifted to a less constructive view of the economy over the next 12 to 18 months. We now expect that economic growth to disappoint and a recession to occur 2023. This said, we are not expecting the recession to be particularly long or deep. By mid-2023 the worst may be behind us, and risk assets could begin a sustained move higher.
Read MoreIn our Midyear Update I observed “the current market environment is about as challenging as any I can recall in the past 40 years” and three months later this remains the case. Inflation continues to be the dominant challenge as the Federal Reserve has surged their hawkish rhetoric along with the fastest interest rate tightening cycle in the past half century.
Read MoreThis has been a difficult year for stocks, and it may not get much easier in the near term. September is historically a tough month for equities. Since 1950, the S&P 500 Index has averaged a 0.54% decline in September, the worst of all 12 months.
Read MoreThe current market environment is about as challenging as any we can recall in the past 40 years. A global pandemic, war in Europe, emboldened geopolitical adversaries, potential food and energy shortages, unprecedented monetary policy decisions, political divisiveness, and runaway inflation give all investors plenty to worry about. The question on everyone’s mind is what happens next.
Our goal in this mid-year strategy update is to connect the dots and offer a logical interpretation of current economic and market data. The insights presented in this report will build upon our monthly commentary (The Private Client Letters) and our Spring Symposium presentations. This report is a vital component of a continuous dialog with clients and our unwavering goal to “achieve clarity in a complex world.”
We could never have imagined 16 years ago when we adopted this tagline how complex the world would become. That said, we have always known that achieving clarity would be the greatest responsibility we would have for our clients.
Disclosures:
THIS COMMENTARY HAS BEEN PREPARED BY CLEARWATER CAPITAL PARTNERS. THE OPINIONS VOICED IN THIS MATERIAL ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE OR BE CONSTRUED AS PROVIDING LEGAL, ACCOUNTING, OR SPECIFIC INVESTMENT ADVICE OR RECOMMENDATIONS FOR ANY INDIVIDUAL. ALL ECONOMIC DATA IS DERIVED FROM PUBLIC SOURCES BELIEVED TO BE RELIABLE. TO DETERMINE WHICH INVESTMENTS MAY BE APPROPRIATE FOR YOU, PLEASE CONSULT WITH US PRIOR TO INVESTING. INVESTING INVOLVES RISK WHICH MAY INCLUDE LOSS OF PRINCIPAL. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities, insurance products, or to adopt any investment strategy. The opinions expressed are as of the date of writing and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Clearwater Capital Partners to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. S&P 500 is a registered trademark of Standard & Poor’s Financial Services, a division of S&P Global (“S&P”) DOW JONES, DJ, DJIA and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings (“Dow Jones”). The two main risks related to fixed-income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments.
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