Japan Summit: Consumer Resilience and Trade Uncertainty

With concern high over inflation and tightening Fed policy, investors looking for practical solutions may want to take another look at the municipal bond market.-----Transcript-----Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, June 15th, at 10 a.m. in New York. It's been a tough few days for markets. With last week's inflation data showing yet another surprisingly high reading, both stock and bond markets have been selling off. The concern is that the Fed may have to get more aggressive in hiking rates in order to bring inflation under control. That would mean slower economic growth, which is a challenge for companies and stocks, and higher interest rates, which needs to be reflected in lower bond prices and higher bond yields. Understandably, investors are looking for practical solutions. One place we continue to favor is the muni bond market. It's been a volatile performer this year, and it's true that recently bonds haven't been a haven from broader market volatility. And that bumpy performance could go on a bit longer for munis as bond yields rise to price in a more aggressive Fed path. But that should change once the Fed's intentions are better understood. Plus, the coupons of most munis are tax exempt, something that provides extra value for investors who are keeping an eye on developments in Washington, D.C., where negotiations are gaining momentum on a package to raise taxes, to pay for investments in clean energy, health care and paying down the national debt. This means an already solid taxable equivalent yield of over 5% for investors in the top tax bracket, could improve further if D.C. acts to hike taxes. Of course, the rising recession risk from the Fed raising rates may have you concerned about muni credit quality, but in our view muni credit should be quite durable even if there is a recession. By our calculation, muni sectors got more federal aid than they needed to deal with the impacts of COVID, and the sharp economic recovery since then had mostly returned muni business activity and revenue growth to pre-COVID or better levels. And even if inflation persists, history suggests this shouldn't be a system wide credit challenge. Sure, municipalities' costs will go higher, but so would their revenues. So putting it together, bonds are probably a decent spot for investors to shelter during this volatility, and we think munis stand out among your bond options. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

15 Kesä 20222min

As central bank policy across the globe shifts from tight fiscal policy to tight monetary policy, the rising cost of capital will have long-term consequences for investors.-----Transcript-----Welcome to Thoughts on the Market. I'm Graham Secker, Head of Morgan Stanley's European Equity Strategy Team. Along with my colleagues, bringing you a variety of perspectives. I'll be talking about the rising cost of capital and its implications for European equities. It's Tuesday, June the 14th, at 2 p.m. in London. As we have discussed previously, we believe that we have witnessed a paradigm shift in the macro and market backdrops over the past couple of years, swapping the secular stagnation of the last decade with a new cycle where nominal growth is both higher and more volatile. An alternative way to think about this is that the policy dynamic has shifted from an environment of loose monetary and tight fiscal policy over the last two decades, to one of looser fiscal policy, but tighter monetary policy today. If this characterization proves to be true over the coming years, the longer term consequences for investors will be profound. While this may sound somewhat grandiose, it is worth noting that global interest rates fell to a record low in this last cycle. From such an unprecedented low, even a moderate increase in borrowing costs may feel significant, and we note that we have just witnessed the largest 2 year increase in 10 year U.S. Treasury yields since the early 1980s. The fact that we are starting a new and relatively fast rate hiking cycle, at the same time as central banks are shifting from quantitative easing to quantitative tightening, further magnifies the risk for spread products such as credit or peripheral debt, both of which have underperformed materially over the last couple of months. At this stage, we think it is this dynamic that is arguably weighing most on equity markets rather than the economic impact of higher borrowing costs. When thinking through the investment implications for European equity markets of this rise in the cost of capital, we make three points in ascending order of impact. First, the consequences of higher borrowing costs are likely to produce a relatively small hit to corporate profits. While we are concerned about a significant decline in corporate margins over the coming quarters, this is predominantly due to higher raw material prices and rising labor costs. In contrast, even a doubling of the effective interest rate on corporate debt should only take around 2.5% off of total European earnings. Second, we see a more significant impact from higher capital costs on equity valuations, as price to earnings ratios have exhibited a close negative correlation to both central bank policy rates and credit spreads over time. Hence, while European equity valuations are now beginning to look reasonably attractive after their decline this year, we think risks remain skewed to the downside over the summer, given a tricky backdrop of slowing growth, high and sticky inflation and hawkish central banks. Finally, the most significant impact from higher borrowing costs will, as ever, be felt by those entities that are most levered or require access to fresh funding. At this stage, we do not expect the ongoing increase in funding costs to generate a broader systemic shock across markets. However, we do see ample scope for idiosyncratic issues to emerge in the months ahead. Logically, identifying these issues in advance primarily requires due diligence at the stock level. However, from a top down perspective, the European sectors that are most correlated to credit spreads, and or have the weakest balance sheets, include autos, banks, consumer services, food retailing, insurance, telecoms and utilities. Ultimately, the volatility within asset markets that will accompany the largest upward shift in the cost of capital in over 30 years will create lots of opportunities for investors. However, for now, we recommend patience and await a better entry point later in the year. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

14 Kesä 20223min

With consumer sentiment hitting an all time low due to inflation concerns, the question investors should be asking is, are these risks to the economy properly priced into the market?-----Transcript-----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, June 13th, at 11 a.m. in New York. So let's get after it. Over time, the lion's share of stock returns is determined by earnings growth if one assumes that valuations are relatively stable. However, valuations are not stable and often hard to predict. In our experience, most investors don't spend nearly as much time trying to predict multiples as they do earnings. This is probably because it's hard to do consistently, and there are so many methodologies it's often difficult to know if you are using the right one. For equity strategists, predicting valuations is core to the job, so we spend a lot of time on it. Our methodology is fairly simple. There are just two components to our method; 10 year Treasury yields and the equity risk premium. At the end of last year, we argued the P/E at 21x was too high. From our vantage point, both ten year Treasury yields and the equity risk premium appeared to be mispriced. Treasury yields are more levered to inflation expectations and Fed policy. At year end 10 year Treasuries did not properly reflect the risk of higher inflation or the Fed's reaction to it. Today, we would argue it's not the case. In fact, 10 year Treasury yields may be pricing too much Fed tightening if growth continues to erode and recession risks increase further. In contrast to Treasury yields, the equity risk premium is largely a reflection of growth expectations. When growth is accelerating, the equity risk premium tends to be lower and vice versa. At year end, the equity risk premium is 315 basis points, well below the average of 375 basis points over the past 15 years. In short, the equity risk remaining was not reflecting the rising risks to growth that we expected coming into this year. Fast forward to today and the equity risk premium is even lower at just 300 basis points. Given the rising risk of slowing growth in earnings, this part of the price earnings ratio seems more mispriced today than 6 months ago. At the end of the day, we think 3400 represents a much better level of support for the S&P 500 and an area we would consider getting bullish. Last Friday, consumer sentiment in the U.S. hit an all time low due largely to concerns inflation is here to stay. This has been one of our greatest concerns this year with respect to demand and one of the areas we received the most pushback. We continually hear from many clients that the consumer is in such great shape due to the excess savings still available in checking accounts. However, this view does not take into account savings in stocks, bonds, cryptocurrencies and other assets, which are down significantly this year. Furthermore, while most consumers have more cash on hand than pre-COVID, that cash just isn't going as far as it used to, and that is likely to restrain discretionary spending. Finally, we think it's important to point out that the latest reading is the lowest on record, and 45% lower than during the last time the Fed embarked on such an aggressive tightening campaign, and was able to orchestrate a soft landing. In other words, the consumer was in much better shape back then, and that probably helped the economy to stabilize and avoid a recession. Let's also keep in mind that inflation was dormant in 1994 relative to today and allowed the Fed to pause, a luxury they clearly do not have now given Friday's red hot Consumer Price Index report. Bottom line, the drop in sentiment not only poses a risk to the economy and market from a demand standpoint, but coupled with Friday's CPI print keeps the Fed on a hawkish path to fight inflation. In such an environment, we continue to recommend equity investors keep a defensive bias with overweighting utilities, health care and REITs until the price or earnings expectations come down further. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps more people to find the show.

13 Kesä 20223min

As inflation continues to rise beyond expectations, the Fed is set to meet next week, leaving markets to wonder if an acceleration in rate hikes might be in store this summer.-----Transcript-----Welcome to Thoughts on the Market. I'm Robert Rosner, Senior U.S. Economist for Morgan Stanley Research. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about this morning's inflation data and how that may impact Fed discussions at next week's FOMC meeting. It's Friday, June 10th, at 2 p.m. in New York. This morning, we received the Consumer Price Index data for May that showed a faster than anticipated increase in both headline and core inflation. Inflation continues to be lifted by high food and energy prices, and the combination of the two have pushed inflation up to a new high on a year over year basis, to. 8.6%. That rise in inflation reflects not just gains in food and energy prices, but extremely broad based increases under the surface, with core goods prices continuing to reaccelerate and core services prices also remaining strong, reflecting continued upside in travel related airfares and hotels. While other factors like rents and owners' equivalent rents both jumped. Rents in particular posted their fastest sequential month on month pace of increase since 1987. That's really impo the Fed next week because this sets a tone of inflation that remains very elevated as the Fed sits down to discuss its policy. Moreover, many, including ourselves, had been expecting that the peak for inflation on a year over year basis would have been registered back in March. But today's data showed that CPI has reached a new high on a year over year basis. That raises uncertainty about the outlook for inflation. And Fed policymakers have expressed some concern about the possibility for some underlying reacceleration in inflation. We also saw at the same time that data from the University of Michigan Survey of Consumer Sentiment showed that both short and longer term household expectations for inflation have been on the rise. So the risks around inflation remain high, and as the Fed sits down next week policymakers are likely to see inflation as remaining a top of mind topic. We have been expecting the Fed to pursue a series of 50 basis point rate hikes as the FOMC seeks to tighten financial conditions in order to slow demand and eventually slow inflation. And markets after the inflation data moved very quickly to price in an even more hawkish path for Fed policy, with some risk that a 50 basis point rate hike might not be enough and that there might be some chance that the Fed could deliver a 75 basis point rate hike at some point over the summer. We'll hear from policymakers next week as to whether or not an acceleration in the pace of rate hikes is something that they see as an attractive option. But the bottom line here is the Fed's work is far from done. Inflation remains high, incoming data suggests that growth has moderated, but has not slowed enough to feel confident that inflation is likely to follow. It's going to be a tricky summer for Fed policymakers, and a tricky summer for data watchers as well, because each incremental inflation data point is likely to inform how Fed policymakers are likely to react and what that path for rate hikes is likely to look like over the summer and into the fall. Thank you for listening. If you enjoy the show, please leave us a review on Apple Podcasts, and share Thoughts on the Market with a friend or colleague today.

10 Kesä 20223min

While many investors may be curious to know what other investors are thinking about current and future market trends, there’s a lot more to the calculation of investor sentiment than one might think.-----Transcript-----Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Thursday, June 9th, at 6 p.m. in London. I've found that investors are almost always interested in what other types of investors are doing. Some of this is curiosity, but a lot of it is interest in sentiment and a desire to try to quantify market emotion to give a better indicator of when to buy or sell. One can find a variety of metrics that portend to reflect this investor mood. Many of them move in nice, big, oscillating waves between fear and greed. But as anyone trying to use them as encountered, investing based on sentiment is harder in theory than practice. The first challenge, of course, is that there is little agreement in professional circles on exactly the best way to capture market emotion. Is it different responses to a regular investor survey? Is it the level of implied volatility in the market? Is it the flow of money in and out of different funds? The potential list goes on. Next, once you have an indicator, what's the right threshold to establish if it's telling you something is extreme? If you poll a thousand investors every week, maybe 70% of those investors being negative tells you the mood is sufficiently sour. But maybe the magic number is 80%, or maybe it's 60%. Defining positive or negative sentiment isn't always straightforward. Finally, there's the simple but important point that sometimes the crowd is right. Think of a long bull market like the 1990s. People were often optimistic about the stock market and correct to think so as prices kept rising. Meanwhile, people are often bearish in a bear market. We remember the dour mood that persisted throughout 2008. It certainly didn't stop stocks from going down. With all of this in mind, our research is focused on finding some ways to use sentiment measures more effectively. We think it makes sense to use a composite of different indicators, as true extremes are likely to show up across multiple approaches to measurement. Valuing both the level and direction of sentiment can be helpful. Rather than trying to catch an absolute extreme or market bottom, the best risk reward is often when sentiment is negative but improving. And sentiment is more useful to identify market lows than market peaks, as negativity and despair tend to be stronger, sharper emotions. Identifying peak optimism, at least in our work, is much harder. So don't beat yourself up if you can't find a signal that consistently flags market tops. Those ideas underlie the tools that we've built to try to turn market sentiment into signals as the age old debate around the true state of fear and greed continues throughout this year. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave us a review. We'd love to hear from you.

9 Kesä 20223min

Under the combined stresses of dry weather, COVID, and the Russian invasion of Ukraine, agricultural prices are spiking, and many countries are scrambling to combat the consequences to the global economy. Morgan Stanley Chief Global Economist Seth Carpenter explains.-----Transcript-----Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist. Along with my colleagues, bringing you a variety of perspectives, today I'll be talking about the surge in agricultural prices and some of the implications for the global economy. It's Wednesday, June 8th, at 1:30 p.m. in New York. Agricultural prices have jumped this year, and that surge has become one of the key topics of the moment, both on a domestic level and a global scale. The Russian invasion of Ukraine clearly contributed significantly to the runup in prices, but even before the war, dry weather and COVID-19 had already started to threaten the global food supply. Rising food prices pose many risks, particularly for lower income people and lower income countries. Even though I'm going to be talking mostly about cold economics today, the human toll of all of this is absolutely critical to keep in mind. In fact, we see the surge in food prices as a risk to the global economic recovery. When prices for necessities like food go up, lower income households just have to spend more on food. And that increased spending on food means they've got less money to spend on discretionary items. To put some numbers on how we got here, global food prices have surged about 66% since the start of COVID-19, and about 12% since the start of the Russian invasion of Ukraine. Dry weather had already affected crops, especially in Latin America and India. And remember, fertilizer is tightly linked to the petrochemical industry, and the Russian invasion of Ukraine has complicated that situation, leaving fertilizer prices at all time highs. So what's been the response? Governments across developed markets and emerging markets have started enacting measures to try to contain their domestic prices. In the developed market world, these measures include attempts to boost domestic production so as to relieve some of the pressures. While in EM, some governments have opted to cut food taxes or put in place price controls. In addition, some governments have also imposed bans on exports of certain agricultural products. The side effect, though, is getting more trade disruptions in already tight commodity markets. Against this backdrop, there are two key consequences. First, consumption spending is likely to be lower than it would have been. And second, inflation is likely to rise because of the rise in food prices. And if we look at it across the globe, emerging markets really look more vulnerable to these shocks than developed markets. First, in terms of consumption spending, our estimates suggest that the recent rise in food prices might decrease real consumption spending throughout this year by about 1% in the U.S. and about 3% in Mexico, all else equal. Now, that said, not every component of spending gets affected uniformly. Historical data analysis suggests that the drop is heavily focused in durable goods spending, like for motor vehicles. And EMs are more exposed because they've got a higher share of food consumption in their overall consumption basket. Now, when it comes to inflation, we think that the recent spike in food prices, if it lasts for the rest of this year, it's probably going to add about 1.2 percentage points to headline Consumer Price Index inflation in emerging markets, and about 6/10 of a percentage point increase to inflation in DM. These are really big increases. Now why should the inflationary push be higher in emerging markets? First, just arithmetically, food represents a larger share of CPI in emerging markets than it does in DM, something like 24% versus 17%. And second, in emerging markets, inflation expectations tend to be less well anchored, and so a rise in prices in a critical component like food tends to spread out to lots of other components in inflation as well. So what's the bottom line here? Growth is slowing globally. Inflation is high. The surge in food prices is going to increase the risks for both of those. Thanks for listening. If you enjoy this show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or a colleague today.

8 Kesä 20224min

As some provisions of the Tax Cuts and Jobs Act start to kick in and others are set to expire, the future of U.S. tax rates may hinge on the results of the upcoming midterm elections. Head of U.S. Public Policy Research and Municipal Strategy Michael Zezas and Head of Global Valuation, Accounting and Tax Todd Castagno discuss.-----Transcript-----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Head of U.S. Public Policy Research and Municipal Strategy for Morgan Stanley. Todd Castagno: And I'm Todd Castagno, Head of Global Valuation, Accounting and Tax for Morgan Stanley Research. Michael Zezas: And on this special edition of the podcast, we'll be talking about the 2022 U.S. midterm elections and the potential impact on individual and corporate taxes. It's Tuesday, June 7th, at 10:00 AM in New York. Michael Zezas: If you're a regular listener, you may have heard my conversation with our chief U.S. Economist, Ellen Zentner, last week about the economic implications of this year's midterm elections. This week, Todd Castagno and I are going to continue the midterm election topic because individual and corporate taxes could be set to increase starting this year. But the question is how high, when and what the impact from the election could be. So, Todd, you and I have talked about this and we agree that taxes are likely headed higher for both individuals and corporations. Maybe you can tell us why that is. Todd Castagno: Thanks, Michael. And it's really a driving function of how the Tax Cuts and Jobs Act was passed. And that's because Congress used the budget reconciliation legislation, which is primarily temporary. So, for instance, the individual provisions generally all expire at the end of 2025. And business tax increases have already started to phase in this year. So extension of the status quo for both businesses and individuals really is a function of the political landscape heading into midterms and then the next presidential election. Michael Zezas: Okay. So let's start with the individual taxes. Maybe you can name some provisions set to expire and what the changes would be. Todd Castagno: So Michael, let's first provide an overview of what the Tax Cuts and Jobs Act did for individuals. First, it reduced individual tax rates. Second, it almost doubled the standard deduction, meaning fewer taxpayers require itemized deductions. It provided a generous 20% deduction for small businesses, and pass-through businesses. It provided a much more generous child tax care credit, that's also refundable. And then the alternative minimum tax was reduced, so fewer taxpayers were caught in that tax. All these provisions are set to expire at the end of 2025 if Congress does not act. Michael Zezas: Let's shift over to corporate taxes. The Tax Cuts and Jobs Act lowered the corporate tax rate to 21% in 2017. Is there a chance we could see that climb? And to what level? Todd Castagno: That's true. One of the only permanent items of the Tax Cuts and Jobs Act was to reduce the corporate tax rate from 35% to 21%. However, starting this year, there are other tax increases within the corporate tax system. For instance, the requirement to amortize R&D costs over 5 years starts this year. That will primarily affect technology companies. And then there's elimination of favorable media expensing for capital expenditures, that starts to phase out next year, and that primarily would impact manufacturing and industrial companies. And then there's more restrictive deductibility of interest expense. So these in conjunction, will raise tax obligations. And it really depends on the political climate of how these get extended, and if that 21% corporate rate may nudge higher. Michael Zezas: Todd. Last October, you and I talked in the podcast about a two pillar tax overhaul which would come out of global tax reform. Nine months later, how do you see that playing out? Todd Castagno: So there's an ongoing effort to A, change the mix of which countries get to tax corporate income and B, the establishment of a global minimum corporate tax rate of 15%. The wheels are still in motion, but let's say the bus has slowed down. For instance, in the U.S., the required reforms are part of the build back better legislation, which has recently stalled. And then in Europe, nearly unanimous agreement, but they're still one or two states that are not fully on board. Todd Castagno: Michael, I want to turn it back to you. Investors and policymakers clearly have some worries about inflation risks. How will that factor into what kinds of effective tax increases would be palatable for lawmakers? Michael Zezas: Sure. Policymakers in Washington, D.C. have become really sensitive to inflation. And so tax increases now serve a purpose as a tool for Democrats to achieve some of their spending goals, like investing in clean energy, but doing so without contributing to inflation by increasing government deficits. So given that if Democrats manage to get a new spending bill focused on energy across the finish line, the tax increases will likely need to match that spending. So that keeps corporate tax increases and tax increases focused on high income earners on the table. Todd Castagno: Finally, before we close, I'm curious if you've heard anything from our economist or equity strategist on what the impact will be on growth, or corporate bottom lines, if some or all of these expirations occur? Michael Zezas: Well, tax increases mean higher costs for companies and households. So this becomes one of several factors that our equity strategists say will contribute to the crimping of the bottom line of U.S. companies. And they don't think that's in the price of the stock market quite yet. And so what that ultimately means is that the volatility we've been experiencing in markets is something they think is going to continue. Michael Zezas: Todd, thank you so much for talking. Todd Castagno: Great talking with you, Michael. Michael Zezas: And thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague, or leave us a review on Apple Podcasts. It helps more people find the show.

7 Kesä 20225min

While markets look forward to an acceleration in earnings growth and a subsequent rise in valuations over the next year, there are risks to this outlook that investors may want to consider before abandoning a defensive position.-----Transcript-----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, June 6th, at 11 a.m. in New York. So let's get after it. Over the past several months, we've been highlighting the declining trend in earnings revision breath. However, it's been a slow moving train and we're barely below zero at this point. This is why forward 12 month earnings estimates are still grinding higher for the S&P 500, and one reason why stocks have rallied over the past few weeks. But now valuations have risen back to 17.5x earnings, despite a rising 10 year Treasury yield. In order for this to make sense, however, one must take the view that earnings growth will reaccelerate later this year. Time will tell, but we think S&P 500 earnings growth will slow further rather than reaccelerate. Some have argued these revisions were fully priced, with the major averages down more than 20% year to date. In short, the earnings risk is now understood and the market is looking forward to better growth next year. In the absence of further revisions in the near term, that view can hold up for now. However, if earnings revisions don't reaccelerate, we think the price is too high. This is why we think it could be difficult for the equity market to make much upward progress this summer or fall from current levels. Either the price needs to come down to reflect the further earnings risk we foresee or the earnings need to fall. We think both will happen over the course of the second and third quarter earnings season as companies come to the confessional one by one. In the absence of a recession or a shock like the COVID lockdowns, negative earnings revisions typically take longer than they should, and this time is likely to be no different. Therefore, we remain open minded to the idea of stocks hanging around current levels and even rallying further in the near term, especially if there is some kind of pause or cease fire in the Russia Ukraine war. However, even if that were to happen, we don't think this reverses the fire and ice that is now well-established but incomplete. Bottom line, the bear market rally that began a few weeks ago can continue for a few more weeks until the Fed makes it crystal clear they remain hawkish and earnings revisions fall well into negative territory. That combination should ultimately take the S&P 500 down towards our 3400 target by mid to late August. As we've been highlighting all year, equity investors should be more focused on single stocks and relative opportunities across sectors. In that regard, real estate has seen the strongest earnings revisions over the past 4 weeks. Food, beverage and tobacco, commercial and professional services and materials have also seen a positive change in revisions. Finally, capital goods and the overall industrial sector have fared relatively well over the past 4 weeks, as their absolute revisions have remained flat. The weakest revisions have come from consumer and tech industry groups, two areas we remain underweight. Food and staples retailing revisions have collapsed over the past 4 weeks, as concerns over cost pressures on top of already thin margins hit the space. Consumer discretionary has also continued to see weakness in revisions over the past 4 weeks, despite some modest relief more recently over the past 2 weeks. Bottom line, U.S. stocks appear in the midst of a bear market rally that could run a few weeks longer. The Nasdaq and small cap indices will outperform under that view in the short term. However, we remain defensively positioned into the fall when a more durable low in equity markets is likely to coincide with a bottom in earnings growth. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps more people to find the show.

6 Kesä 20223min