Ghosts of 2022

As I've stated aplenty herein in writing and in the videos of late, we remain constructive on equities, but with a relatively short window of confidence -- that being into late this year/early next... The ultimate headwind that we've assigned high odds of developing is precisely the one that is troubling markets as I type this morning.

In a nutshell, our view in January was that when we add up record tax refunds, a recession-level budget deficit (huge net govt spending), a new Fed chair who's appointment would come with some serious strings attached, and whatever else an administration heading toward a mid-term election can conjure up to make voters happy -- well, sure, that "should" be a recipe for higher equity prices in 2026.

But, here's the thing, if the juice is to flow in such a manner against an already inflationary backdrop, there's only so much upside room -- or perhaps only so much time remaining -- before the ghosts of 2022 (a nearly 30% peak-to-trough selloff in the SP500) begin invading the dreams of investors far and wide... Those ghosts would be named inflation, higher interest rates and falling price-to-earnings ratios.

Now, until this week, investors have been sleeping easy thus far in August -- as weak jobs and tamer than expected inflation prints had everybody thinking that perhaps inflation and interest rates weren't going to be quite the worry after all... Thing is, while stocks were rising, and fed fund rate hike odds were falling, the longer-term rates that matter for mortgagees, for corporate borrowers and, alas, for investors didn't budge... I.e., the bond market didn't buy the narrative the stock market was selling... Not given the latest out of Iran, and the wide-open government spending spicket that needs funding (bigtime treasury borrowing), etc, etc.

Of course one day that hints at what's potentially to come does not constitute a firing of the proverbial starting pistol... I.e., there's mountains more to play out, both domestically and geopolitically that shouldn't, at this juncture, have one abandoning an otherwise near-term bullish outlook.

I'll keep you posted.

This commentary is provided for informational and educational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, sector, or investment strategy. The views expressed reflect the opinions of Private Wealth Advisors as of the date written and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results, and all investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as personalized investment, tax, or legal advice.