Making sense of markets in everchanging times

Sat, 06/03/2023 - 11:30am

The economy is in a confusing place right now. There are conflicting narratives about whether we are headed for a recession and mixed signals from different economic indicators. As inflation is broadly falling in developed countries around the world we are also seeing a strong labor market in the U.S.

The overall unemployment rate is at historic lows and this is complicating the direction of the federal reserve. Its dual mandate of low inflation and maximum employment means hiking rates further could jeopardize the job market to ensure inflation stays cool.

While many economists forecast the Fed will stop raising rates sometime this year there is still uncertainty about when or how much higher rates will go from here.

What is clear, however, is the need for action. For much of the past decade investing has been on autopilot; low rates and high returns in passive funds tracking the market made this easy. Today it is much harder to be a passive investor without making big bets about the direction of the economy and the market to correctly position oneself one way or another.

There are further calls that this is the end of a low-rate environment for a while and we have seen peak passive. The necessary outcome of complex and confusing markets is that investors now must be sharper, and better informed.

As an avid newsletter reader there are a few essentials that I recommend to keep up with markets. I mainly rely on the Wall Street Journal, Bloomberg, and the Financial Times for news and information. The WSJ offers several great newsletters, including The Intelligent Investor, and the Markets A.M.

Bloomberg also offers a multitude of informative newsletters: Bw Daily, Five Things to Start Your Day, and Matt Levine’s Money Stuff. Here is a great article to provide some insight into the trouble with forecasting a recession.

So what’s next? Well that largely depends on which of the three macro narratives you believe. We could either see a mild recession sometime this year, narrowly avoid a recession and achieve the dubious “soft landing” scenario the Fed is hoping for, or we see the economy reheating again and this causes a whole new set of problems.

In any case, it behooves you to hedge your bets by preparing for turbulent economic conditions. This means eliminating expenses and paying down debt. It also means taking advantage of growth opportunities with lower relative risk in the bond market. Fixed income yields have been steadily falling since the 1980s and are primed for a rare opportunity to deliver stable income growth with minimal risk.

As far as equities go, the best bet is to focus on high-quality companies that can deliver stable earnings and dividends.

As Stephen Mitchell, head of investments at Black Cuillin Investment, in London, puts it: “The peak in U.S. inflation called the bottom in risk assets last year. Very simple really. Now we have the confirmation of global rates peaking out and huge job cuts beginning in USA and Europe. It is bullish. The patterns in markets in 2023 so far are clearly akin to those at the start of a bull market.”

He continues: “This recession is one of the most anticipated and thus heavily discounted ever and markets are now looking across the valley to the other side. This is good news.” His conclusion is to buy quality growth companies.

Nobody really knows what is going to happen…


Max Provencher is Stockton Springs native enrolled at Bentley University in Waltham, Massachusetts. Max is a finance major with a concentration in capital markets and a minor in politics. He is actively involved as a Future Business Leaders of America Alumnus and is passionate about promoting financial literacy and business education. Max is a member of the Bentley Investment Group, which manages a portion of the University’s endowment. In his spare time, he enjoys playing golf and skiing.