Midyear Outlook: Eve of Disruption?
Jack Janasiewicz and Garrett Melson offer their take on the shifting macro narrative in the second quarter.
- With wage income fueling spending and consumer balance sheets very robust, worries about tighter credit may be overblown.
- We’re seeing last year’s headwinds shifting to tailwinds and normalizing back to pre-Covid growth patterns.
- We are past peak pain from housing, with inventories normalizing, construction spending going up and Covid-era supply chain issues being resolved.
- Is narrow market breadth really a problem with the market up double digits this year? Breadth is more about sentiment, and tends to catch up to price action over time.
- Regarding inflation and rate increases, the Federal Reserve is slowly completing Powell’s checklist, with core goods decreasing, the lagged effects in home rents kicking in, and wage growth helping supercore services decline.
- Fallout from the banking crisis seems to have abated – deposit flows have stabilized and bank earnings have surprised to the upside.
- Two key considerations for the asset mix in equity allocations: where are we in the growth cycle and where are we in rates?
- A barbell with tech and cyclical may be effective positioning for a soft landing or no landing scenario.
- In fixed income, the risks of staying short are rising – this is the time to add duration to portfolios.
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