CAPIS held its February research briefing, featuring Nick Colas, Co-Founder of DataTrek, Wall Street’s go-to commentary for differentiated and actionable investment ideas.
Research Briefing Video
Colas’ presentation addressed the following topics:
How US and Global Equity markets have performed year to date (1:50)
- S&P 500 is up 8%, Nasdaq 15.3% , Russel 11.3%
- We are seeing a bounce back from over sold levels in December 2022, but we are still seeing a solid return in Q1 2023
- The US is beating the rest of the world markets by around .5%
- China re-opening unexpectedly helped European stocks more than emerging markets
- Big Tech is getting a big bounce back, and we are seeing US equities gaining more strength
What is driving equity markets right now (5:15)
- Why are stocks so resilient and volatility low?
- Colas suggested to watch VIX
- Why things shouldn’t be as strong as they are
- Economic data since start of year has been very strong in the US
- Jobs are up 500,000 and sales are up 3%
- Unemployment insurance claims are running below 200k claims per week, which is the lowest we have seen since the Vietnam War
- Federal Reserve may have made a mistake slowing down rate cycle so the market will have to reconsider what Fed is going to do
- Why it matters:
- There may still be a recession, but based on how powerful S&P and corporate earnings are currently, Colas’ expects any recession will be shallow
- Demand in Q1 has been good
- Analyst expect things to stay about the same
- The NY fed probability model is pointing toward possible recession this year; over 50% probability of recession in next 12 months; highest since the 80’s
How the rest of the year is shaping up (14:41)
- Investors need to show caution in the back half of 2023; equity markets have done a good job staying at a fair value
- Fed has to keep raising rates because of strong economy
- Restaurant and bar revenue is up 20% which indicates that a recession is not here
- We have seen cost cutting measures in preparation for a recession; necessary for markets to bottom out
- Should see a very investable model at the end of Q3 or Q4
- Optimistic about US equities over the next 5 to 10 years; need to make sure to be cautious about where to position yourself the rest of 2023.
- Where is the bottom?
- Should expect around the same as 2020 low 3387
- How does a bottom happen with inflation going up… has the cost been passed to the consumer?
- Max margin was hit a year ago and we have seen margins coming down
- Unable to pass these along to consumer anymore
- Technically in an earnings recession
- If interest rates are so much higher, why do we not see a discount rate?
- Rates are looked through as long as they are not causing a recession
- What sectors would you avoid or go towards over the next 6 months.
- Health care has a reasonable valuation still see health care going up or staying flat… Energy is still good because it is cheap in valuation… Tech has held on but may be time to lighten up on it.
- War in Ukraine, how is it impacting equity markets?
- Oil prices are what matter, in spite of China re-opening and the Russia/Ukraine war, we have seen the collapse of oil prices. Many have moved on because of China re-opening. Oil is what to watch.
- How does gold bode going forward with the US dollar going up?
- Thought the dollar would have rallied more than it did. Earnings are not the only thing helping markets. Fundamental confidence is what is helping markets which will continue to weaken the dollar value. Gold: more buying from central banks going on. Highest purchasing rates since 1967 creating an alternative currency that is tied to gold. 3-5% is a good place to be on portfolio allocation.
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