The Lookout | Week of October 17, 2022

The Lookout | Week of October 17, 2022

This week is set to be a packed one for investors with several domestic and international economic data points set to be released. In this week’s edition of The Lookout, Hunter Frey of Catalyst Funds, Rational Funds, and Strategy Shares lets us know what he’ll be watching and why it matters.

Major Market Events:

Monday, October 17: CNY GDP (YoY) (Q3) & NZD CPI (Q0Q) (Q3)

Tuesday, October 18: EUR German ZEW Economic Sentiment (Oct)

Wednesday, October 19: GBP CPI (YoY) (Sep) & EUR CPI (YoY) (Sep)

Thursday, October 20: USD Initial Jobless Claims & USD Existing Home Sales (Sep)

Friday, October 21: EUR EU Leaders Summit & GBP Retail Sales (MoM) (Sep)

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

• Equities rebounded after the UK Prime Minister Liz Truss’s economic easing plan (unfunded tax cuts) was rescinded. Equities also breached and continue to test technical support levels (amid extreme oversold levels) with some optimistic earnings from Bank of America supporting increased risk appetite and the hope for a market rally (on October 17, 2022).
• As we have highlighted through the second half of the year, equities may experience a seasonal rally as the fourth quarter during a Midterm year historically delivers positive returns. The MLIV Pulse Survey supports this sentiment. However, suppressed earnings increasing downward biased volatility may cap a seasonal market rally.
• Corporate credit has become increasingly leveraged to cash on hand and generation of future cash flows. As inflation weighs on corporate balance sheets, liquidity tightness for corporate bonds remains pivotal to determining attractive opportunities. However, due to heightened liquidity during COVID-19, a capped default cycle may be expected if the economic backdrop worsens, and inflation remains elevated. Companies have been able to retain historically higher levels of cash due to COVID-19 capital injections and this may help markets avoid a default crisis. Thus we believe quality short duration corporate debt focusing on companies with sufficient cash levels can provide investment opportunities.
• Other credit markets remain exposed to a higher interest rate environment supporting our opinion to remain overweight in short duration and uncorrelated asset classes (NARMBS).