“He who lives by the crystal ball will eat shattered glass” Ray Dalio

As we return to our market commentary from the Easter break there is still so much for equity investors to digest. Into the weekend the S&P was down just under 8% year to date as investors weigh up the balance between rising rates, higher inflation, and a slowing but still growing global economy. The IMF lowered its estimations for growth this year for the global economy to 3.2%. Despite this news, US stocks rallied sharply as investors focussed on earnings from Johnson and Johnson, Lockheed Martin and IBM. There will be more pain for those who retain large positions in highly valued technology shares as Netflix announced its first quarter of a net loss of subscribers, the stock fell over 25% in after-hours trading. That news is likely to rock technology sentiment even further.

The latest Merrill Lynch fund manager survey reported that investor sentiment is bearish, and it’s easy to see why. The Zero Covid policy China continues to pursue despite the obvious potential impact it will have on growth. Chinese authorities did lower the bank reserve ratio to help stimulate the economy, but it can have a limited impact if no one can go out and work. One thing, unlike most of the rest of the world, Chinese authorities do not have to worry about inflation. The latest inflation report shows a year on year inflation running at 1.5%.

The sanctions inflicted have an effect on the Russian economy, and also have implications for the broader economy. Obviously, the continued threat to the economy the tighter monetary policy will have on US growth. Fund manager expectations for global economic growth have fallen to their lowest ever level. But the survey also revealed that investors had increased their exposure to equities to an overweight position.

As 10 year US treasury yields reach almost 3%, the US yield curve has steepened materially in the past week. It was not too long ago that the debate was all around what the flattening yield curve was telling us about the outlook for US growth?

The US dollar continues to climb higher against other currencies, this itself has a tightening effect on the economy. As commodities are priced in dollars a stronger dollar historically puts pressure on commodity prices, possibly further easing inflationary pressures.

There is plenty of anecdotal evidence the global economy is slowing. One example BCA research highlights Sweden’s new orders v inventories have been deteriorating as there is a strong correlation between that and global PMIs. Another the spread between the Conference Board’s consumer expectations and current situation indices points to an economic slowdown

As yet economists are not calling for an economic recession this year, despite the warning signals being there. So far stocks remain resilient. I was grateful for a birthday gift, Principles, the life of investor Ray Dalio. It was interesting to read that no matter what research he did and how many bases he tried to cover timing markets is incredibly difficult. He has also lost money at times trying and often the most obvious of trades do not make money.