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From "Hurricane" To Now Just Mere "Storm Clouds": Wall St Opinions Are As Dynamic As The Markets

The leading bankers on Wall Street sounded the alarm. Jamie Dimon of JP Morgan Chase described a pending hurricane that was set to strike sometime this year. David Salomon, CEO of Goldman Sachs, shared Dimon's sentiment and told analysts on its Q2 earnings call that equities and bonds looked perilous in the coming months. Goldman set aside a cash reserve to withstand an economic downturn, which he told analysts was sure to come. He even put a freeze on hiring for the remainder of the year. From my humble perspective it's hard to argue to the contrary. The Treasury yield curve has been inverted for months, new home builds are at a 1.5 year low, the US has had negative GDP the previous two quarters and stubborn inflation has compelled the Federal Open Market Committee to declare war on consumer prices, even if housing, stocks' and bonds' prices suffered collateral damage.

The bond markets experienced its worst first half of any year in its history this year. However, the tone seems to be shifting. While the NASDAQ was down nearly 30% YTD at its lows, its recent bounce back -- along with the S&P 500 and DOW -- has challenged the presumption that 2022 will be as ominous as ever. Is it a technical bounce from over selling? Or, are the FAANG companies that were dependent on artificially low rates in their early stages -- but have since contributed to the majority of the S&P 500's decade-long runup -- able to prosper with higher costs of capital? All five of the mega cap tech companies are very cash flow positive, by the way. Were our fears overblown that by increasing the cost of money and, in effect, driving demand down for consumer goods and borrowing we would suddenly lock up and not know how to go on? Perhaps. I believe Jamie Dimon, who today scaled down his sentiment by saying maybe it's not a hurricane, but "storm clouds" on the horizon, shares that view. Can a couple months fundamentally change the trajectory of where our markets are headed, especially considering the data hasn't changed materially? We will find out the answer in the coming twelve months. We don't invest our clients' money based on trends and changing opinions of even highly regarding Wall Street thought leaders. Sentiment is real and it can drive market action in the short term. And our current position is that this is a short term phenomenon and that we will see even greater volatility in the coming six to 12 months as the consumer weakens and the dollar remains strong. In these times we are defensive and will continue to be so until the macro variable meaningfully change and that a sufficient price "rediscovery" among asset classes occurs. But, we could absolutely be wrong. I guess at this time it's just a matter of opinion.


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