The Tug-O-War Continues

Financial markets can be thought of as a continuous tug-of-war between two opposing forces – most often described as the bulls and the bears.

Over its long history, the bull thesis has been the way to go as prices have generally trended up. However, every so often, there are short periods of time where uncertainties abound, and we see the battle between these forces take center stage as the markets seek a clear direction. So far in 2023, we are witnessing this play out in real time as two opposing narratives collide – Soft Economic-Landing Bulls v/s Hard Economic-Landing Bears.

Currently, there seems to be no clear definition or consensus for either side. Moreover, economic indicators are giving mixed or conflicting signals, giving credence to both views which has ultimately increased the sense of uncertainty. Although, we do not have sufficient evidence yet on which scenario plays out, we intend to be opportunistic when the evidence manifests.

Furthermore, the recent market turbulence is a byproduct of very swift central bank tightening, which really ramped up in mid-2022. In fact, we know that Fed tightening works with a lag on the economy. And its purpose of driving down inflation (by reducing demand/growth through higher interest rates) is now coming into focus by investors, as weak hands in the US regional banking sector were exposed.

Where does this leave us? As higher interest rates put pressure on corporate earnings there is the likelihood that the tug-o-war between the bulls and the bears will continue. As such, it will be increasingly important not to lose focus on your long-term goals. Because when the dust settles we firmly believe that the bulls will re-gain the upper hand, paving the way for equities to move steadily higher as they have following every recession through time.

Your unique circumstances and risk tolerance are key factors in the ongoing management of your portfolio. To discuss how this or other financial opinions may affect your investments please contact me.

Sincerely, Marc