A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Looking at what companies have to say about inflation is key. Will these companies be able to pass on higher input costs? We could potentially see some stagflation. If companies are not able to keep their margins, then it will be tough. The quarterly earning that is coming up should be okay, but it will most likely slow down in subsequent quarters.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Fear is running the markets and it is tough to call the bottom. You need to have a good timeframe in order to weather the volatility that is expected. Thinks buyers will be rewarded. Investors are seeking safety in a tough market. In the short term, this likely won’t change with the Ukraine war ongoing and inflation remaining high. Unlock Premium - Try 5i Free
COMMENT
Market risks are elevated and economic growth will slow down this year. U.S. GDP forecasts are around 2% for first quarter. Central banks globally will be more aggressive in moderating inflation but they can't control the supply side. 10 year bonds have gone up substantially and are at 2.75% today. We are coming into earnings season so we'll see how companies are dealing with inflation. S&P is 19X earnings so the margin of error is somewhat low. Some of earnings increases is a result of companies passing on inflation costs with higher prices so look for companies with strong pricing power, not ones that are price takers, or with low pricing power.
COMMENT
The question was on U.S. banks.. He owns JP Morgan and Bank of America both down from their highs. Also PNC Financial which has a strong balance sheet. Bank stocks have not been trading well. Also some slowdown in investment banking revenue. They will benefit from Block Chain technology over the long term and have been investing a lot of money in this area. The U.S. citizen is in strong financial shape and banks should see an uptick in consumer installment credit.
COMMENT
He's been raising cash lately to benefit from the pivot to the new winners as rates rise: oil, financials, healthcare and health insurers and industrials to benefit from consumer spending or the price of oil. These are the new winners. He doesn't like selling, because he has to pay capital gains and sell some of his favourite stocks. He fears the heydey of the tech giants is over, at least until the 20-year treasury comes down and inflation peaks.
COMMENT
When the S&P was down 11% and the Nasdaq 23% from their peaks those were corrections that baked in a lot of negativity. So the market has not ignored the possibility of a recession. The market as a while may not be, but certain stocks have fallen hard enough to make them attractive. Pick your spots. There is a lot of worry over whether we are heading to a recession. The Nasdaq has been volatile. At 3.6% unemployment, it's hard to imagine a recession. But expect more volatility in earning season in coming weeks. Maybe take profits and find buying opportunities.
COMMENT
There's already a lot of worry (inflation, Ukraine). Next week, we'll get CPI data and retail numbers which will show us how the consumer is doing. Also, financials will start earnings season next week. There's some encouraging inflation news: this week the world container index is starting to come down by over 3% week-over-week. Also, used car prices are not surging like they did during Covid, but came down 3.9%. He remains cautious about the market, but there remain opportunities in places that have been beaten up. If indeed the supply chain eases, that could put stocks in a good position. Stocks are one of the best hedges against inflation.
COMMENT
He's bullish, which is a contrarian view now. We're seeing a natural pause in an upward trend as markets digest a rate shock from the Fed. Yes, there are negatives like the yield curve inverting, the Fed's hawkish comments and Russia/Ukraine. But these are priced into the market. Looking ahead three months: inflation may have peaked, labour force participation is picking up which eases wage pressures and freight supply chains unsnarling and Russia/Ukraine could go either way, but likely will be a stalemate. It's likely the Fed will hike rates in early May but then step back and see how that effects inflation. He's suspicious rates will hit 2.5% by year's end; the Fed doesn't have to.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Expects companies with strong balance sheets to perform well. Preference to equities over the long term, even if there is a recession. Potential is much bigger in stocks than with bonds. Sector-wise, bullish in consumer staples, mega-cap tech, financials and utilities. Unlock Premium - Try 5i Free
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