Trademark Market Perspective for 8/29/2022
Trademark Financial Market Update – August 29, 2022
1) The big news today was always going to be the market reaction to Fed Chairman Powell’s Jackson Hole Speech. Powell wasn’t trying to move the stock market (even though he knew he would), but the market had run hard on the idea that he was close to moving back to a neutral stance on interest rates. He firmly disabused stock investors of this notion today. Theoretically investors can fight the Fed (if they believe the Fed is in a corner and has to pivot), but this is dangerous because the Fed has a lot of tools at its disposal. The summer rally was an attempt to front-run a Fed pivot from hawkish to neutral, and if today is any indication it will fail miserably.
2) I believe China’s upcoming National Congress is something far more significant to the world than what the Fed said today. This is expected to take place this November, though the exact date has not been confirmed. Xi Jinping is attempting to become, effectively, president for life. Power in the hands of one person is not generally investor-friendly, especially not a person with little love for messy, diffuse, unpredictable nature of free markets. Expect Chinese markets to trade as a proxy on Ji’s prospects, with market weakness a sign of Xi being more likely to consolidate all power. If Xi ultimately does not prevail, expect an explosive move to the upside – in China certainly but also to a lesser degree in other emerging markets.
3) From Wisdom Tree, a breakdown of the investable world:
- 61% United States
- 28% Developed EAFE (16% Europe, 6% Japan, 3% Canada, 3% Australia & NZ)
- 11% Emerging Markets (3% Taiwan+S. Korea; 4% China w/Singapore & HK; 2.6% So. Asia, 1.4% Africa & Middle East)
This is what Vanguard’s index and target date funds reflect. It has been fairly easy over the past 12 years to outperform global benchmarks by overweighting the United States. Though the benchmark calls for 39% of equity holding to be outside the U.S., we have almost always been between 24% and 30% over the past decade. We are around 26% today, but with absolutely everything going wrong for foreign markets lately the potential upside to a lessening of global strife in terms of lower inflation, cheaper energy, and a weaker dollar could be enormous.
4) Energy had a very good week on news of a larger-than-expected drawdown in national oil reserves. Regard this as a volatile series; the next weekly report could easily show more reserves than forecast. It is true that we have under-invested in energy over the 2016-2021 time period, but we are making up for that now and oil is being hoarded in some areas. We might well see prices fall as a temporary glut is resolved before the primary trend continues higher. Today is not the time to buy.
5) One of the big reasons for the 1H22 market decline was the expectation that corporate profit margins would fall due to rising labor and materials costs. If the results from the most recent earnings season are any indication, however, companies are fairly easily passing those costs on. This may be bad for consumers and bond investors (persistent higher inflation), but its good news for stock prices. This has been a catalyst for US stocks since earning season began around July 18th. Earnings season is almost over now, so this tailwind has less impact now versus the strong headwind of a resolute Fed.
Past performance is no assurance of future results. Trademark Financial Management, LLC (“Trademark”) is a registered investment adviser with its principal place of business in the State of Minnesota. Trademark and its representatives are in compliance with registration requirements imposed upon investment advisers by those states in which Trademark operates. Trademark may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration. This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by Trademark with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A complete list of all recommendations will be provided if requested for the preceding period of not less than one year. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Opinions expressed are those of Trademark Financial Management and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security. For information pertaining to the registration status of Trademark please contact Trademark at (952) 358-3395 or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about Trademark, including fees and services, send for our disclosure statement as set forth on Form ADV from us using the contact information herein or by calling 952-358-3395. Please read the disclosure statement carefully before you invest or send money. Any reference to a chart, graph, formula, or software as a source of analysis used by Trademark Financial Management staff is one of many factors used to make investment decisions for your portfolio. No one graph, chart, formula, or software can in and of itself be used to determine which securities to buy or sell, when to buy or sell them, or assist any person in making decisions as to which securities to buy or sell or when to buy or sell them. Any chart, graph, formula, or software used is limited by the data entered and the created parameters. The data was obtained from third parties deemed by the adviser to be reliable. Nonetheless, the adviser has not verified the results and cannot be assured of their accuracy.