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And We’re Off…

In this week’s video Jake continues the discussion on his two-part series highlighting how to structure and prioritize your long-term retirement savings.

And We’re Off…


  1. Equity Markets – Expanded this week with U.S. stocks (S&P 500) up 3.45% while international stocks (EAFE) gained 3.92%

  2. Fixed Income Markets – were mixed with investment grade bonds (AGG) down -0.52% while high yield bonds (JNK) gained 2.86%

  3. Banking Sector Turmoil Cooling – In a positive sign that the panic around the financial sector is cooling, banks reduced their borrowings from two Federal Reserve backstop lending facilities this week by over $10 billion ($152.6 billion outstanding compared to $163.9 billion the week prior). This also suggests that recent efforts by policymakers to curb contagion have worked so far. While far from resolved, this reduction suggests a slightly improving liquidity picture for U.S. institutions.

  4. Oil Pricing Overhaul – After years of discussions U.S. oil will now represent part of the Date Brent benchmark amid concerns of the existing benchmark slowly running out of tradable oil for it to remain reliable. Starting in June West Texas Intermediate Midland, oil from the Permian will become one of a handful of grades used to determine the Dated benchmark. The Dated benchmark helps set the price of 2/3rds of the world’ oil supply and plays a major role in determining pricing on some gas deals.

  5. Key Insight – [VIDEO] In this week’s video Jake continues the discussion on his two-part series highlighting how to structure and prioritize your long-term retirement savings [ARTICLE] Tim breaks down markets performance to start the year, as well as discusses the bull and bear cases looking forward into 2023.


“May you live in interesting times…” – Ancient Chinese Curse

After a brutal 2022 across most assets classes many investors probably felt “cursed” and as we entered 2023 there were no shortages of doomsday scenarios being espoused. And yet, risk markets year-to-date have proven to be resilient despite a still hawkish Fed.

If you were to just read the headlines you might be surprised to know that the S&P 500 is up around 6.5% and the Barclay’s bond index up around 3% so far in 2023. Even more surprising to many is the performance of European stocks (FEZ) which are up over 15% just this year, and up 12% over the last year compared to negative overall returns for all the major domestic benchmarks.

All this has left investors feeling pretty polarized between extreme fear for some and renewed bullish sentiment for others.

Our advice to most investors at this time is to embrace the opportunity to be a diversified investor that exists today where many bonds are once again of value and many alternative asset classes are trading with very attractive yields. After a decade of S&P 500 centric returns, there are many other assets classes that should not only help you dampen volatility but actually have real return potential themselves.

With higher interest rates just settling in at elevated levels and beginning to really work through the economy it would not surprise us to see volatility pick up over the next couple of quarters.

That isn’t to say one should abandon equities, but we maintain our conviction that value and dividend-oriented sectors are likely the best place to be not only from a total return perspective, but also for their dollar-cost s averaging capabilities until greater direction appears within the Fed’s future policy.

The battle between deteriorating economic conditions and the timing/scale of future monetary easing and/or rate cuts from the Fed will determine whether the bulls or bears “win” over the next few months.

As summarized by JPMorgan, “While the odds of a U.S. recession have increased … the risk outlook for the markets is becoming more balanced. Monetary policy should pose less of a headwind for stocks going forward. Economic data is moving in the right direction and the slowdown in inflation, wages and activity should become more pronounced in the coming months. Moreover, if the outlook worsens, the Fed could ease monetary policy, which could provide significant support to financial markets. Meanwhile, the investment landscape still presents opportunities. Bonds can provide portfolios with attractive income and some capital appreciation when the Fed eventually cuts rates. An emphasis on quality is important, but broadly speaking, equity markets tend to perform well in the 12 months following an end of a tightening cycle, as shown in the chart.”

Adding to the uncertainty within markets is this month’s banking concerns. Alpine Macro still feels that perhaps the greatest risk coming fromor overactive governments themselves that upend banking norms and trigger a crisis. In any case, virtually everyone sees greater government regulation over the next couple of years and further consolidation within the sector. While many people are trying to “trade” these fears, our best advice would be to refrain from trading risk assets based on what are still guesses about banking’s future and remain mindful of your cash levels. Tom Essaye pointed out a very important data point(s) that between the Fed discount window and Bank Term Funding Program, both of which exist to help banks in need of cash, the Fed has had to lend $160 billion just since March 1st. He continues, “as the old saying goes, “Put your money where your mouth is.” So far, banks’ money, and their mouths, are telling us that the regional bank crisis is not over, and if anything may be getting worse.”

Goldman Sachs recent take on the financial crisis is a bit more benign. They pointed out that while “(r)ecent stress in the financial sector has raised concerns regarding the monetary health of banks. Relative to the Global Financial Crisis, many banks today hold more cash, fewer risky real estate loans, and have lower loan to deposit ratios. In addition, Tier 1 capital ratios, representing the first line of capital available to absorb losses, are at multidecade highs, providing capital buffers for these banks.” (see accompanying chart)

On the potentially bullish side is the 10-year Treasury having seemingly put in a top with the yield having declined below its 200- day moving average. As Bespoke notes, this has usually resulted in decent markets over the next year, if not right away. That points out that historically after such drops below the 200-day moving average, “in terms of the individual periods, there were just two where forward returns over the next year were extremely weak (Oct 1973 and March 2000). These are also two prior periods that often get bandied about in comparison to the current period. However, you could also make comparisons between now and other periods above as well (extreme volatility of the treasury market in the early 1980s and Orange County bankruptcy’s impact on the Financials in late 1994), but it’s always easier to remember the bad experiences than the good ones. One thing to note about the 1973 and 2000 periods, though, is that the S&P 500 was pretty much weak right out of the gate once those streaks came to an end and never was even up 3%. It has only been two weeks since the most recent streak came to an end, but for now, the S&P 500 has been able to tread water. The longer that continues to be the case, the more comfortable investors will be thinking that a repeat of either of those two periods is less likely.” (see accompanying chart)

Another bullish quantitative indicator is the continuation of record dour sentiment with the latest AAII reading coming in at just 22.5% bullish. The historic average is 37.5% and the latest reading brings the consecutive week streak of below average sentiment to 71 weeks.

In summary, bullish investors need to see/believe the following:

  • A banking crisis will be avoided
  • Inflation will continue to slow
  • The Fed will cut interest rates by year-end
  • A hard-landing/severe recession will be avoided

While bearish investors will likely need to see some combination of the opposite of two or more of the above.

It’s a fair fight which is why we feel many income assets are such a great option. Many of them can “win” in either case, maintaining or increasing in value as safe havens in a recessionary risk-off event or possibly rallying alongside stocks in the event the Fed does engage in monetary easing sooner than is currently expected.

Have a wonderful weekend!

Tim and the team at TEN Capital


Data points this week included:

  • U.S. Jobless Claims – initial claims rose by 7,000 last week for a total of 198,000 claims. Continuing claims also saw a slight increase to 1.689 million.

  • U.S. Michigan Consumer Sentiment – fell to a level of 62 in March for the first monthly decline in four months. Of the five index components expectations for forward looking 12-month business conditions saw the largest decline.

  • Germany Retail Sales – unexpectedly fell 1.3% in February despite expectations for 0.5% growth. This marks the 3rd consecutive month of contraction in sales as high inflation and economic uncertainty weighs on consumers.

  • Eurozone Unemployment – remained at a record low of 6.6% in February and better than expectations for an uptick to 6.7%. Among the Eurozone constituents Germany recorded the lowest unemployment rate (2.9%) while Spain registered the highest (12.8%).

  • Eurozone ZEW Economic Sentiment Index – fell to a level of 10 inn March following February’s one year peak. This was the first drop in sentiment Since October amid an increase in economic uncertainty caused by recent troubles to the financial system.

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