The Lookout | Week of November 28, 2022

The Lookout | Week of November 28, 2022

Federal Reserve Chair Jerome Powell is expected to speak on Wednesday, a Core PCE Report is expected on Thursday, and the all-important November jobs report will be released on Friday. In this edition of The Lookout, Hunter Frey of Catalyst Funds, Rational Funds, and Strategy Shares includes what he’ll be watching in the week ahead.

Major Market Events:

Tuesday, November 29: US CB Consumer Confidence (Nov) & EUR German CPI (YoY) (Nov)

Wednesday, November 30: US Fed Chair Powell Speaks & US GDP (QoQ) (Q3)

Thursday, December 1: US Core PCE Price Index (MoM) (Oct) & US Initial Jobless Claims

Friday, December 2: US Unemployment Rate (Nov) & CAD Employment Change (Nov)

Hunter Frey, Investment Analyst, Catalyst Funds, Rational Funds, Strategy Shares

• Equities opened the week continuing to trade lower, with the Federal Reserve’s rhetoric stressing that more rate hikes are needed to tame inflation and China’s Covid-Zero complications casting uncertainties about reopening, impacting global economics. With these factors in mind, the equity market’s recent positive momentum remains challenged.
• Stagflation remains the top risk for the global economy in 2023 with the equity market rally losing some steam. However, oil has rallied as OPEC+ weighs deeper output cuts amid market dysfunction.
• Longer-dated corporates (10 years plus) have seen a +9.5% rebound in November, representing its largest gain since December 2008. Given the potential for slower rate hikes in 2023 (though rates may remain higher for longer) some longer dated corporate bond investment opportunities have started to present themselves in low-dollar-priced bonds of IG companies.
• If a slower interest rate increase hike path unfolds (supported by Powell’s Wednesday meeting, lowering inflation, and the approach to an ideal terminal rate), longer-dated investment grade corporate bonds may become attractive – especially blue-chip companies. However, the risk of overtightening could create duration risk and an economic slowdown. Both of those scenarios would hurt longer dated corporates. Therefore, Powell’s narrative and the monetary policy actions remain pivotal to the outcome of this potential investment opportunity. Currently, more defensive bets would continue to remain short duration.