Core Beliefs Revisit Overdue

This article was last updated on April 16, 2022

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USA: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…Myriad developments indicate that a revisit is overdue to core beliefs on the part of central banks, politicians and companies alike. Unease appears in the breakdown of the latest FOMC voting, in the belabored central bank comments in Europe as well as in contradictions between the Bank of Japan inflation and 10 year fixed income targets. Politicians respond more to pressures than rationale. There are many geopolitical stresses as well as internally in many democracies, not least amid elections from the United States to Europe. In the capital markets, there is much focus on central bank policy on quantitative ease. Within risks assumed as a consequence, there is irony at work.

Several developments have taken place in the fixed income, currency and commodities space. Until quantitative ease, acceptance was widespread that less constrained markets led to better quality growth but with commodity markets seen as being more subject to manipulation. The irony currently is that commodity businesses from materials to energy have been undergoing severe restructuring, while authorities appear managing even long dated fixed income. Equity valuations have increased, ostensibly on the basis of low sovereign bond yields but also currently on momentum while growth should be equally key. Equities have seen favor for dividend yield. With another round of corporate result quarter end reporting due, there have again been more rounds of earnings reduction. On restructuring and clarity, we see favor for energy and materials as appropriate, with slow growth likely already incorporated. As a group in business cycle sensitive sectors, we favor Energy, Industrials and Materials over the Consumer areas. Especially subject to valuation expansion have been in Staples. In growth, we see advantages in Information Technology over Healthcare. Financial Services seem to us still as crucial for the markets. Volatility is likely to be elevated in index levels being up without participation by the Financials.