Economic Insights

The August CPI report that came out last Tuesday was the catalyst for a sharp market reversal. The headline number was a benign 0.1%, helped by falling gasoline prices. But the “core” number (ex food and energy) came in at 0.6%.

The August CPI report that came out last Tuesday was the catalyst for a sharp market reversal. The headline number was a benign 0.1%, helped by falling gasoline prices. But the “core” number (ex food and energy) came in at 0.6%.

Historically, equity markets are positive roughly 80% of the time, or 8 out of 10 years. So far this year, they are negative. In addition, the average annual drawdown peak to trough is ~14% (source: J.P. Morgan Guide to the Markets Report).

Since 2016 the payout on the MLP-dedicated Alerian MLP ETF (AMLP) is down by half. Corporations have done better because they generally have higher coverage. Today’s pipeline CFO is building in plenty of cushion to protect payouts even in a steep downturn, which is why dividend hikes and buybacks are becoming more common.

While the Federal Reserve is focused on fighting inflation and willing to cause “some pain” to achieve victory, they hope to do so without evoking a recession. Such may be a challenge for two primary reasons:

The bear market is over. While that statement fills the mainstream media, it remains a hotly debated question in every media forum. It is an interesting point considering that it was just in June we were answering the question of “when will this bear market end?”

“Thankfully, energy has been the bright spot in our client portfolios,” said investor Emily Jaffe. We had just sat down to enjoy a most convivial lunch with Emily and her business partner Jeff Waters of OFC Wealth Management. In the photo below we are toasting the performance of the pipeline sector this year.

Consumers have already begun making decisions based on higher prices. There will be big winners and losers which makes stock picking a very important portfolio position for the next 12-24 months. Not every company is well suited for the environment we are in, and the most relevant brands will be taking market share. That’s where our team is focused from a stock selection perspective.