The Lookout | Week of October 24, 2022

The Lookout | Week of October 24, 2022

Investors will be busy this week with several companies announcing their third quarter earnings and plenty of important economic figures being released. To help make sense of everything that’s going on, Hunter Frey of Catalyst Funds, Rational Funds, and Strategy Shares gives us his thoughts on this week’s edition of The Lookout.

Major Market Events:

Tuesday, October 25: US CB Consumer Confidence (Oct) & AUD CPI (QoQ) (Q3)

Wednesday, October 26: CAD BoC Interest Rate Decision & US Crude Oil Inventories

Thursday, October 27: US GDP (QoQ) (Q3) & US Initial Jobless Claims

Friday, October 28: US Core PCE Price Index (MoM) (Sep) & CAD GDP (MoM) (Aug)

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

• Though equities remain choppy, seasonality continues to support a tactical bull case. Defensive trades, specifically healthcare, dominate equity markets amid the uncertainty from earnings and whether or not the Federal Reserve will temper interest rate hikes after November. A Fed pivot remains top of mind for investors despite economic data clouding certainties. We still believe that equities may experience a tactical rally after the Midterm elections with volatility remaining stubborn.
• Fixed income markets (especially IG corporate bonds) have seen lower-than-expected issuances. The tight supply may support credit spreads amid macroeconomic downturns (i.e., recession). However, high yield bond issuances dropped approximately 73% YTD, as interest rates and credit risk overshadow tighter capital access and higher default risks. Due to accommodative financing in 2020 and 2021, most maturity dates are between 2026 and 2029. These dates are minimizing the risk of a maturity wall.
• Investors should remain diligent in managing duration and credit risk amid a troubling macro backdrop. Nonetheless, NARMBS continues to outperform the Bloomberg Aggregate Bond Index by approximately 15% YTD. NARMBS outperformance shows the continued value within the space. Therefore, we continue to favor short duration corporate credit and NARMBS.
• Important economic data set to be printed this week will likely create some choppy trading, with earnings likely to remain weak and increase volatility. However, seasonality may provide a technical floor to markets through the end of the year if economic data does not steadily worsen.