Market Moment

By Hightower Bellevue on August 19, 2022

Randy’s Weekly Market Moment – August 19, 2022

Interest Rates, Earnings, & Inflation

As a lot of investors have learned during this bear-market cycle, the direction of interest rates, earnings, and inflation all impact the financial markets. Mr. Market hates inflation because he knows it has to be contained before markets can move forward, and the only way to contain inflation is to slow the economy by raising interest rates, which also impacts earnings. Here is the key: Markets trade on the expectation of future earnings. If those expectations improve, markets rally, like they have since mid-June. Translation: The Fed will be successful in curtailing inflation, and they will have minimal negative impact on economic activity and the United States will avoid a severe recession. We are also in the camp that another 75 basis-point rate hike is due in September, and that is already priced into the markets. If you don’t believe me, just ask Mr. Market or look at the 10-year U.S. Treasury yield for clues. The 10-year U.S. Treasury bond yields have declined over the last 60–90 days, which could mean the economy is slowing enough to curtail inflation. I also look closely at how stocks trade to determine if this is a bear-market bounce or the beginning of a new bull-market cycle. The world’s largest cell phone and computer company is down just 2% for the year, and the stock has rallied over 30% off its low. I think that is a very good sign for the bulls. Speaking of good signs, how about my Mariners? If the season ended today, Seattle would host a three-game playoff series at T-Mobile Park, since the M’s now hold the first wildcard spot. Yes, there still is a lot of baseball left, but for this diehard, it would be amazing to watch playoff baseball in Seattle. I have to comment on our catcher Cal Raleigh. He leads the MLB in homeruns by a catcher, and this is his first full year in the big league. He has a great future in Seattle, and the Mariners will benefit. Other teams don’t have catchers who can smash the ball like Cal. He is the real deal, and one of the reasons for the Mariners success.

Don’t make any plans for early October just yet, but also don’t let Mr. Market convince you the current rally is over just yet. Good vibes only!