May 17, 2023
Good morning,
Perhaps it’s the Irish in me, but I am not a big fan of calm. I’m always looking over my shoulder for the storm it likely precedes. Stocks are stuck in one of the dullest trading environments in years, with traders seeming reluctant to make big bets ahead of a possible US debt-ceiling crisis and the next round of Federal Reserve interest-rate moves.
The S&P 500 Index has posted six consecutive weekly moves of less than 1% in either direction, the longest streak in almost 5yrs. The looming US debt-ceiling deadline (June 1, according to U.S. Treasury Officials) and subsequent threat of a US default is one of the biggest risks on which investors seem unwilling to take a clear view. Looking at past crises, stocks rallied in 2013 and slumped in 2011, with the direction depending on the prevailing economic conditions. Part of the issue now may be that prevailing economic conditions look blurry at best.
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Under the heading of “another country heard from,” I attended a research presentation yesterday hosted by BCA Research (the old Bank Credit Analyst, if you’re old enough to remember that name) – an independent (non-Wall St) fundamental market research company. Peter Berezin, Chief Global Strategist, has been the hot dot of strategists lately, coming into this year overweight equities contrary to the consensus. He recently dropped his equity allocation to neutral from overweight and expects his next recommendation to be under-weight equities in late summer.
Distilling his 32-page report, Peter’s highest conviction call is a recession in 2024. When asked where he could be wrong – he said the recession comes earlier due to the contraction of credit (regional bank pressures). He also thinks there’s a good chance equities get through the summer unharmed, if not a little higher due to the recession being pushed out into 2024, but believes this coming recession can be delayed but not avoided.
Unfortunately, Peter’s projections are now consensus – again, I’m not too fond of crowds.
Anyway, no Morning Note from me on Friday. I’ll be attending an investor conference for one of our private investment companies. See you Monday, God willing – have a good weekend.
Be well,
Mike