In today’s briefing:
- Soft CPI Is Helpful, But It’s Still A Bear Market
- Who’s Swimming Naked As The Tide Goes Out?
- US Economic Management Under Divided Government: Is the Fed Still Capable ?
Soft CPI Is Helpful, But It’s Still A Bear Market
- While the soft October CPI report is intermediate-term positive for risk assets, equities face a number of important hurdles before a new bull market can begin.
- We believe the U.S. equity market is undergoing a bear market rally.
- The S&P 500 will encounter considerable resistance at about 4130.
Who’s Swimming Naked As The Tide Goes Out?
- Warren Buffett famously said that when the tide goes out, you find out who has been swimming naked.
- We undertake an analysis to find out what countries and sectors have been swimming naked, and who has been opportunistically swimming with the tide.
- We conclude from our technical review that the equity markets are discounting a global recovery, led by cyclical sectors, while technology and China exposure should be avoided.
US Economic Management Under Divided Government: Is the Fed Still Capable ?
- Economic management by Fed due to divided government has been bullishly construed since the 1980s, but this view hinges on whether the Fed undertakes necessary measures to restore price stability.
- Higher uncertainty about the economic and inflation outlooks will be reflected in investors demanding a higher term premium in US Treasuries compared to recent times.
- Significant economic costs could be imposed on the US economy to cool inflation because the easing of fiscal policy during the pandemic period was the largest in peacetime history.
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