Market Commentary

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Market Commentary - March 13th, 2020

Our base case remains that this is a liquidity crisis, not a solvency crisis with the expectation that monetary and fiscal forces will maintain financial market solvency. That said, deflationary shocks and tangible earnings/growth headwinds are inevitable with the magnitude still unclear. Ultimately, if hygiene and social distancing turn out to be enough, the economic hit should be relatively short and manageable. However, if global viral pandemic translates to mass quarantines and long-term business closures, the damage could be significant. The coming weeks should provide indication as to whether Western nations can replicate the success of Eastern nations like South Korea, China, and Singapore which have implemented successful containment measures. We continue to believe this market represents an opportunity for long-term investors to judiciously rebalance portfolios given record low bond yields and real value across global equities contingent on successful monetary/fiscal stimulus across the world. The first signs of daylight (CoVid-19 curve flattening or oil production cuts) should sprout renewed optimism across risk markets. Investors must be properly positioned at that time to participate in what may be a cycle of relatively quick re-pricing of risk. [...]

Market Commentary - March 6th, 2020

Last week, coronavirus, Super Tuesday, and an emergency rate cut by the Fed translated to wild equity market gyrations and a stunning plunge in treasury yields well below record lows. The surprise rate cut by the Fed pulled the rug out from underneath the USD (-2.22%) as both Euro (+2.36) and Yen (+2.63%) rallied sharply. Oil (-8.15%) moved to further price in a significant drop in economic activity while industrial metals and grains held their ground. Gold (+4.58%) rallied in sympathy with the risk off trade which has seen equity market volatility triple since middle February. While we expect continued volatility looking forward, our base case at this point remains firmly in the ‘buy the dips’ camp as Chinese stimulus, U.S. monetary stimulus, and the global manufacturing cycle are likely to ultimately overcome global pandemic economic concerns. [...]

Market Commentary - February 28th, 2020

Covid-19 finally blasted markets last week resulting in the fastest selloff from all-time highs on record while treasury yields plunged to record lows. Clear evidence that the outbreak in China has lept borders (globally 82,000 cases and 2,800 deaths) has fanned fears of an emerging global pandemic. While data in China suggests a plateau, South Korea, Iran, and others (U.S., Mexico, Nigeria, New Zealand, Italy) are now cycling. The CDC indicated some level of disease clustering in the U.S. is highly likely given the global footprint and that social containment measures (cancelled events, school closures, etc..) should be expected. That said, warmer weather, containment measures, and eventually commercial vaccines should ultimately prevail - the key question being whether that happens outside of a global recession. While there will clearly be a negative economic impact from Covid-19, the fall in interest rates, supportive central banks, respectable wage growth, and a booming U.S. housing market should soften the blow at the margin with our base case still avoiding recession. [...]

Market Commentary - February 21st, 2020

The holiday shortened week (Presidents Day) saw the S&P notch another new record high but ultimately finished lower along with treasury yields as weak economic data on Friday and mounting CoVid-19 concerns overtook sentiment. Commodity markets moved higher as both gold and oil rallied on the week. A near record high S&P 500 and simultaneous near record low 10yr yield illustrates the bipolar nature of the market today - a potential precursor to some market consolidation in the near term. [...]

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