In today’s briefing:
- Making Sense of a Mona Lisa Market
- US Companies Preserve Profit Margins Via Higher Prices to Avoid Repeat of 2000-2003 Environment
- Why You Shouldn’t Be Overly Bullish or Bearish
Making Sense of a Mona Lisa Market
- The market is behaving like the enigmatic Mona Lisa as it is beset by a series of cross-currents that investors may not even be aware of.
- The concerns over a potential debt ceiling impasse, as well as the de-dollarization narrative.
- The possible effects of a credit crunch on the economy and the Fed’s reaction…and more.
US Companies Preserve Profit Margins Via Higher Prices to Avoid Repeat of 2000-2003 Environment
- US equity prices declined -20% in real terms from 2021 Q4 to 2023 Q1, identical in magnitude to what transpired over the same time period after the internet bubble peak.
- In contrast to the late-1990s, corporations are responding to rising unit labour costs by increasing selling prices, but this has produced economy-wide inflation.
- Investors cannot have both rich equity valuations and high operating margins when the latter is due to companies simply raising prices to cover higher costs.
Why You Shouldn’t Be Overly Bullish or Bearish
- A review of market conditions reveals bearish macro factors of a possible recession offset by bullish contrarian factors from extreme cautiousness from sentiment surveys.
- A U.S. recession is probably in the cards, but most of the deterioration may have already been discounted.
- This suggests a scenario where neither bulls nor bears gain the upper hand.
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