Market momentum is intact and internals are strong, says SoFi's Liz Young Thomas

Summary

The discussion centers on market trends following the election, focusing on growth, inflation, and interest rates. Experts assess the impact of pro-growth policies and market momentum, noting strong internal indicators like the S&P’s performance above its 200-day moving average. There’s debate on whether the anticipated growth acceleration will materialize, with some experts questioning the sustainability of higher yields. The conversation also touches on how businesses are navigating political uncertainty, adjusting investment strategies, and preparing for potential economic challenges, particularly in light of deregulation and shifting consumer behaviors.

Takeaways

• 😀 The positive market momentum that started before the election was accelerated by the election results, but it remains a continuation of prior trends.
• 😀 Despite short-term volatility, there's still room for growth as long as internal market momentum and key indicators like moving averages remain strong.
• 😀 Bond yields approaching 5% present mixed signals for stocks, with potential pressure on equities, especially ahead of key reports like CPI.
• 😀 The labor market is slowing, with rising unemployment expected, contrasting with earlier expectations of reacceleration in economic growth.
• 😀 Inflation is expected to stabilize, but high enough to prevent aggressive rate cuts from the Federal Reserve, which could slow down economic activity.
• 😀 The current market trend is driven by expectations of slower growth, but the challenge lies in managing mixed signals from bond markets and stocks.
• 😀 Companies with strong fundamentals, especially those able to grow earnings in a variety of economic cycles, are better positioned for success in uncertain times.
• 😀 Deregulation and policy shifts, including tariffs and immigration policies, present potential risks to growth, but investing in resilient companies mitigates those risks.
• 😀 There has been a shift in some companies’ priorities, with businesses holding back on investments like home renovations due to political uncertainty and rising interest rates.
• 😀 The market has priced in a slower growth environment, but the potential for inflationary pressures due to protectionist policies may exacerbate challenges for both businesses and consumers.

Q & A

What was the main topic of discussion in this market analysis?

The main topic revolved around the market's growth risk, the potential for continued growth despite recent volatility, and how the market has responded to economic trends and election-related policy shifts.

How did the market react to the post-election economic environment?

The market experienced a boost, with momentum carrying forward the trends that were already in place before the election. The expected pro-cyclical policies were seen as adding fuel to the market's growth.

What is the significance of the 200-day moving average mentioned in the discussion?

The 200-day moving average is used as an indicator of market strength. In this case, 74% of the S&P stocks and 68% of the Russell stocks were trading above this average, indicating strong internal market momentum and healthy market conditions.

What is Liz Young's outlook on the market's growth prospects?

Liz Young believes that the market still has room to grow due to strong internal momentum, despite short-term volatility. She suggests that fighting this momentum would be a losing battle, and there is continued potential for growth.

How did the bond market react, and what was its impact on stocks?

The bond market showed volatility, particularly as yields approached 4.5% to 5%. This created some trepidation in the stock market, as rising yields can pressure stock prices, leading to mixed signals for investors.

What was Drew Mattis' view on the labor market and its impact on growth?

Drew Mattis highlighted that the labor market is slowing, with small business surveys showing signs that the unemployment rate could rise in the coming months. This suggests that the expected reacceleration of growth may not materialize soon.

What are the expectations for inflation, and how does it affect market expectations?

There is a belief that inflation will remain somewhat stable, but the market is pricing in higher inflation risks, particularly in the ten-year note. However, the potential for inflation to accelerate is not enough to force the Federal Reserve into aggressive action.

How does Emily LaBelle view the current market's investment opportunities?

Emily LaBelle emphasizes focusing on investing in individual companies rather than broad market or country-based investments. She sees potential in companies that are able to control their own destiny and generate earnings growth through various economic cycles.

What factors does Emily LaBelle consider important when choosing investments?

Emily focuses on companies with the ability to grow earnings across different cycles, balancing growth prospects and industry outlooks. She also points out the potential risks from deregulation, tariffs, and immigration policies.

What was the reaction of businesses to the election, and how did it affect their priorities?

Some companies have held back on investments, citing political uncertainty and concerns over rates. For example, certain rental equipment businesses noticed a reduction in consumer spending on renovations, potentially signaling a slowdown.