Economy

We refresh our 2023 plan of attack to reflect the latest data and several rounds of discussions with clients in virtual and face-to-face meetings. We continue to expect a meaningful first-half rally in the S&P 500, despite revising our expected terminal fed funds rate 25 basis points higher.

The US equity market is in the midst of an earnings contraction driven by slowing sales growth – a manifestation of the weakening economic demand and loss of corporate pricing power that accompany disinflation. The telecommunications industry is a defensive industry that faces many challenges: Low growth, cut-throat competition, and incessant demands for capital investment.

Long-term drivers, including the growing ability of banks to returns cash to shareholders, point toward a strong structural performance for European financials. However, the ECB’s aggressive tightening campaign could still spoil the party.

The risk of a recession in 2023 is being supplanted by the risk of another inflation wave. We will turn more defensive on equities if it continues to look like inflation is making a comeback.

From a technical standpoint, the dollar is due for a bounce. In this report, we review various indicators to gauge the magnitude and duration of this rally. We also recommend two new trades: sell the gold/silver ratio at 90 and EUR/SEK at 11.30.