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Tag: inflation

Cyclical Stocks to Outperform as Inflation Drops to 3.5%: Barry Knapp’s 2023 Outlook (Szn 5, Ep. 1)

Published January 9, 2023

Barry Knapp of Ironsides Macroeconomics rejoins the podcast to discuss his surprisingly sanguine view of the economy in 2023: Why cyclical stocks should outperform the technology and defensive sectors, and why he’s expecting inflation to drop to 3.5% by the second half of the year.

Content Highlights

  • Inflationary recessions are different from deflationary ones. The last four were the latter. If there is a recession this year, it will be the former (02:18);
  • Earnings downside is limited in this scenario, by 5% based on what happened in similar situations in the past, and earnings should actually go up (5:56);
  • Tech margins should continue to be under pressure but economically-sensitive cyclical stocks should see margin expansion (10:50);
  • The US labor market has actually started to weaken considerably — and not due to Fed policy (12:18);
  • There have been some big adjustments in the labor market post-pandemic (16:47);
  • The ‘wealth destruction effect’ from tech stocks selling off is negligible (27:35);
  • One point of concern: the deficit. This is where the implosion in wealth could affect things (32:59);
  • The coming budget battle in Congress is worth paying attention to (34:41);
  • The ‘higher for longer’ Fed interest rate hike thesis has gained traction. What this means for stocks (43:27);
  • Inflation: Expect 3.5% CPI by mid-year (47:37).

More Information About the Guest

Not intended as investment advice!

Quick Video Highlights

MoreCyclical Stocks to Outperform as Inflation Drops to 3.5%: Barry Knapp’s 2023 Outlook (Szn 5, Ep. 1)
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Recession in 2023 Should Be Benign With Ample Job Growth: Alex Chausovsky (Szn 4, Ep. 35)

Published December 22, 2022

Alex Chausovsky, vice president of analytics and consulting at Miller Resource Group, rejoins the podcast to discuss his surprisingly upbeat economic outlook for 2023, driven by a healthy labor market in the US.

Content Highlights

  • There may be a recession in 2023 but the US labor market should hold up just fine (3:03);
  • The guest’s assessment is due to first-hand knowledge as his employer is a recruiting firm. None of their clients are slowing hiring (5:37);
  • The trend is due in part to re-shoring of high-end manufacturing to the US, but also to non-US companies seeking to establish manufacturing centers stateside (7:46);
  • The Federal Reserve has been hiking rates aggressively and plans to continue this policy (albeit less aggressively) in 2023, but most of the damage may be done already (9:12)
  • With inflation abating there will be less impetus for the Fed to “truly break things” in 2023 (13:05);
  • Supply chain issues have mostly been resolved, with auto production and semiconductors especially benefiting. Further easing can be expected on the labor side (14:44);
  • One sector of the economy that is clearly poised to benefit: automation (16:56);
  • Background on the guest (22:56);
  • Housing has already contracted but this should turn around by the end of 2023 or early 2024 (31:32);
  • The outcome he’s expecting in his native Ukraine (37:35).

More Information on the Guest

Quick Highlight From Our YouTube Channel

MoreRecession in 2023 Should Be Benign With Ample Job Growth: Alex Chausovsky (Szn 4, Ep. 35)
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Investors May Be Overreacting to the Fed

Published December 16, 2022

Stocks haven’t stopped dropping since the December FOMC meeting. But nothing about Fed policy has changed….

The following is an amended version of the Dec. 16 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack or Supercast.

Stocks sold off dramatically yesterday with the Nasdaq dropping more than 3% and S&P 500 down 2.5%. Today the selling appears to be continuing, and perhaps event intensifying a bit. That would make for three straight days of losses dating to Wednesday’s Federal Open Market Committee meeting.

One can’t help but think that all this risk-off is a bit of an overreaction. Nothing about official Fed policy changed, we just had Fed officials increase their expectations of interest rates for next year. That means nothing. These views are not binding. They are not tied to them in any way and can be expected to adjust them when and if the data changes. You know, exactly like they did this year.

If one is bullishly inclined, then one would probably want to take this opportunity to add to one’s positions or perhaps even take out more exposure to risk assets. There has not been any new data to undermine the ’soft landing’ thesis this week — in fact quite the opposite, with Tuesday’s CPI coming in softer than anticipated and showing that inflation is clearly on a downward trend.

Caution Advisory

Make no mistake: There are multiple reasons to be concerned about the economy and the Fed next year and what that would mean for risk assets. We have talked about those ad nauseum for months. If this narrative begins to win over the hearts and minds of investors, then the data won’t matter anyway. Markets are irrational beasts and once fear takes hold it tends to drown out anything else anyway. Plus, we all know markets can stay irrational longer than we can stay solvent.

But from the looks of it, this has the making of a classic overreaction for the simple reason that no underlying data has changed. If anything, the dot plots are contrarian indicators as Fed officials tend to change their views more frequently than they stick to them.

Our YouTube channel has a short clip from today’s podcast if you care to listen to it.

Nothing here is intended as investment advice. Do your own research. Make your own decisions.

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