Against all odds, the start of the year was bullish. Inflation cooled down thanks to a retreat in commodity prices. Businesses had a sigh of relief as cost pressure and sales were not as bad as expected. With that in mind the Fed was comforted into its rate hike path, yet does not seem to press on a more hawkish agenda. The USD strength seems to have peaked, which is leaving room for non-US assets to rally. Bitcoin and crypto valuations came back from the dead. No surprise that riskier assets rallied the most, with Europe, Tech and Emerging Markets.
We believe that the sigh of relief is warranted by a resilient economic growth. We bear in mind though that financial conditions are still tightening, and global growth is on the wane. Our wild cards remain (i) China’s economic revival, and (ii) further earnings compression on waning consumer demand into 2023. The recent rally is a sign that a lot of money had been sitting on the sidelines and is now gushing back into risk assets, and honestly, we don’t see why not but note that historically-high valuations don’t go hand-in-hand with monetary tightening.
Let’s enjoy it while it lasts. In riskier strategies, we added to ex-US stock late in 2022 and continued into 2023. On income strategies, we enjoyed a rally due to lower yields, and still prefer quality short duration.
360 Advisory LLC is a Boston-based RIA managing investments, including crypto