Stableford Capital Insights

Stableford Market Commentary December 2022

The Fed Reiterates Its Stance

Markets haven’t believed the Fed all year. At every FOMC meeting Chair Powell seemingly surprises investors with Fed hawkishness. It’s like the movie Groundhog Day—the same scene keeps repeating itself. To some extent this makes sense: Decades of ‘the Fed has your back’ are hard to un-learn. But those days are long over; investors are now struggling to catch up with the Fed’s hawkish stance at every meeting.The December Fed meeting was no different. Buoyed by the apparent peak in CPI inflation investors drove equities up over 5% during November. Alas, Jay Powell was having none of it. His ‘higher for longer’ Fed Funds outlook combined with zero governors pricing in rate reductions in their 2023 outlook weighed on equities once again, driving the S&P 500 down 5.9% during December.[caption id="attachment_3998" align="aligncenter" width="940"]

Chart showing Equities down in December

Exhibit 1—Fed Comments Drive Equities Down 5.9% in December[/caption]Meanwhile, U.S. 10 Year Treasury Yields moved up 27 basis points in December. This move is harder to dissect as rates were down initially but drifted higher in the second half of the month. Much of the move appears to have been a rebound from temporary lows in early December that were driven by flurry of buying as traders worked to establish positions prior to the low volume holiday trading days.[caption id="attachment_3999" align="aligncenter" width="940"]

Chart showing bond yields rising

Exhibit 2—Bond Yields Rose 27 Basis Points to 3.88% During December[/caption]Stableford’s ViewOur view is largely unchanged. We like our exposure to U.S. Treasuries and high-quality equities. The treasuries provide two ways to win through either Fed over-tightening which causes a recession, or inflation falling. We’ve also increased exposure to very short-term fixed income which provides a decent yield as we look for opportunities in equities or longer duration fixed income at better prices.While there does appear to be a high likelihood of recession in 2023, it need not be deep nor prolonged. There are no obvious structural financial flaws as there were in 2008 that might lead to something “breaking”. Most corporations have manageable levels of debt and access to capital has been unchecked thus far, despite a record 425 basis point increase in Fed Funds during 2022.So, we are waiting for a better opportunity to increase equity exposure, which we believe will occur during 2023 as companies manage earnings expectations down to manageable levels. In the interim, clipping coupons from low risk fixed income with the potential for price appreciation from long duration bonds seems like a good place to be.

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SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

July 8, 2024
Posted in
by Stableford Capital
Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.