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  • Writer's pictureTim

Plant Those Feet

There are enough cross currents going on in the market right now to spin anybody’s head. The task, however, is to plant your feet and have a view on how developments will unfold. To that end, I wanted to share some of my thinking on various matters. Interest rates: Despite the Fed raising rates, I believe we have seen the peak on the 10-year yield at 4.3% for the next couple of years. Whether due to slowing projected U.S. growth or lower long term inflation expectations, I think it’s possible that the 10-year yield could head lower than its current level of ~3.5% [1]. Dollar strength: The dollar index hit 114 earlier in the year and is now around 105 [2]. The dollar strength that initially occurred because of lower European GDP projections and China COVID shutdowns is now easing. This is positive for our multinational companies. I predict the dollar index will be stable to lower going forward. S&P 500 valuation: As I discussed in a previous piece, the top 10 companies in the S&P skew the indexes average PE to the upside, but the bottom 490 companies trade a much lower multiple than this average. So, talking about the whole market being overvalued neglects the many strong companies trading at a below-average multiple. As the 10-year yield gets lower, I believe these companies will look even cheaper and will get more attention from investors. On the other hand, as we emerge from the doldrums, growth companies may show their face again. China: Despite a stringent and lingering COVID policy, the country has begun to reopen. While the U.S. is worried about reducing demand and slowing our economy, China will be trying to do just the opposite. Pay attention to China because they want and need growth now…. badly. And money seems to be moving into overseas markets. Technical indicators: Based on my indicators we are near term overbought, however long term we are as oversold as we have been since 2016, and almost as oversold as 2008/09. Many stocks will have strong runs over the next 12 months and beyond. I believe it is time to be patient and build for the long haul. The Fed: It is certain that they hate inflation (and should), but they also know that one of the strongest ways to modify inflation is to have a well operating economy. I believe the Fed will slow its rate increases so as not to kill the economy. Stop thinking of them as the “killers of aggregate demand” and think of them as balancing economic risks but wanting a long-term growing economy. Earnings: The next shoe to drop is earnings. I predict, however, that while sales will slow in certain sectors, that companies have now deployed technology to provide insight so that they can adjust their cost structure in real time. Losses will not be as bad as projected in many cases. While sales may slow, earnings might not follow suit. Labor: We hear about a “strong” labor market, but our labor participation rate is lower than before the pandemic. Look for companies to accelerate automation and the use of technology and focus on immigration reform.


1.TC2000 Charting Software Charting Software

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held Twin Gryphon Advisors, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward-looking and should not be viewed as an indication of future results.

Investment advisory services offered through Twin Gryphon Advisors, LLC, a registered investment advisor.

The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. It does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security.

Past performance does not guarantee future results.

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