Have a good day, readers. I’m Senior Reporter Phil Rosen, writing from Manhattan.
Today we’re going to explain why some of the shrewdest voices on Wall Street are advising a shift from stocks to bonds – and what we learned yesterday helps explain why.
Tuesday’s CPI data showed inflation climbed 0.5% in Januaryslightly higher than expected, and year-over-year it slowed to 6.4%.
The reading was nothing out of the ordinary (sorry mum), but it suggests that the whole “disinflationary” idea that Jerome Powell alluded to will be as simple as a meandering line.
Prices, it seems, are not cooling as easily or quickly as anyone would like, especially the Fed.
Throw in January hot jobs reportand the US central bank is dealing with a real pickle – which could ultimately weigh on investors’ wallets.
If this was forwarded to you, register here. Download the Insider app here.
Getty Images / Kiyoshi Ota
1. Markets act like everything is fine, but all is not wellaccording to JPMorgan’s Marko Kolanovic.
Stocks’ good start to 2023 flies in the face of Jerome Powell’s insistence that further monetary policy tightening is yet to come.
For Kolanovic, a recession is anything but guaranteed if the Fed takes its 2% inflation target seriously.
On Monday, the veteran strategist said he was “become more defensiveon equities, and he recommended investors do the same, as the recent rally did not factor in a downturn.
“With stocks trading near last summer’s highs and at above-average multiples, despite weakening earnings and the recent sharp rise in interest rates, we maintain that markets are overstating recent good news on inflation and are content with risk,” said Kolanovic.
Judging by the optimistic direction in the markets, investors are behaving like the Fed about to ease its interest rate hikes.
And as Kolanovic, Morgan Stanley Wealth Management chief investment officer Lisa Shalett warned that Fed policy will drive stocks down.
She thinks investors would be wise to pivot to bonds.
“Problematically, the equity and credit markets aggressively fight the Fed, with valuations only supported by assumptions of significant rate cuts“, she wrote in a Monday note to clients. “History suggests that these strategies often end in disappointment because cause and effect are confused. “
Shalett added that most stocks look overvalued given their current valuations and that any bullish bet go against central bank guidelines.
She said she likes short- to mid-term U.S. Treasuries, municipal bonds and corporate credits, as well as stocks that have the above-average dividend potential.
All the while there is a key indicator of recession it’s stronger than it has been in about four decades.
DataTrek Research co-founder Nicholas Colas pointed out that the New York Fed’s recession probability model, which is based on the spread between three-month and 10-year Treasury yields, shows the probability of a recession next year is 57%.
When the indicator crosses the 50% mark, it has a perfect balance sheet.
“Nobody seems to care, probably because the Fed-induced recessions should have Fed-led recoveries“, said Colas.
What do you think of January’s CPI report and does it impact your investment outlook for 2023? Tweet me (@philrosenn) or write to me (prosen@insider.com) let me know.
David Solomon, CEO of Goldman Sachs
Getty Images.
2. US stock futures fall early Wednesday, as investors look to yesterday’s CPI inflation report to gauge what it means for the Fed. A reading on US retail sales is expected later. Here are the latest market movements.
3. Earnings on deck: The Kraft Heinz Company, Cisco Inc., and more, all reports.
4. Goldman Sachs has named 18 stocks to buy right now. The company said that this year it was essential to choose specific names, because the main indexes will remain stable and these companies are on the verge of breaking out. Additionally, strategists named seven stocks to sell for maximum market upside.
5. A former Gazprom official says the Russian gas giant’s decades of work has been “flushed down the toilet”. The country’s natural gas exports have been undermined by the impact of war and sanctions in Ukraine, and Moscow’s export earnings are expected to fall by about half this year.
6. Here are the top 10 holdings in the Mormon Church’s $44 billion stock portfolio. The Church, which has a $100 billion investment arm, disclosed its portfolio this week in a 13F filing. Currently, the SEC is investigating the Church for possible violations of disclosure rules.
7. David Solomon, CEO of Goldman Sachs, said the economy now looks like it has a better chance of a “soft landing”. While inflation remains sticky and 2023 will bring slower economic growth, the business outlook is more optimistic compared to a year earlier, he said on Tuesday. The executive also noted that China’s reopening will be a catalyst for growth but will add inflationary pressure.
8. Meet this 35-year-old real estate investor. He bought 58 single-family and multi-family homes during the highest interest rates of 2022. Get her top four tips for getting the lowest rates possible and beating the bank.
9. Here is a list of 20 European stocks that can yield up to 208% gains. BofA analysts said this batch of names had the best chance of outperforming in a complex environment – see the list.
Markets Insider
10. Palantir stock soared after announcing its first-ever profitable quarter. Topping analysts’ estimates for revenue and profit, the company also talked about its potential for artificial intelligence. “With this result, Palantir is profitable. This is an important moment for us and our supporters.”
Organized by Phil Rosen in New York. Feedback or tips? Tweeter @philrosenn or email prosen@insider.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) and Nathan Rennolds (@ncrennolds) in London.