Investing.com–JPMorgan CEO Jamie Dimon’s recent warned cockroaches skittering through credit markets following bankruptcies of auto companies Tricolor Holdings and First Brands, stoking fears of a credit cycle turn, but analysts at MRB Partners say the kitchen’s still clean pointing to data showing sturdy credit metrics that will likely get helping hand from Fed rate cuts and a healthy economy.
“We look at the VIX and MOVE indexes, they’re showing an element of complacency in there that’s a bit surprising because of all these events that occurred,” said Phillip Colmar, global strategist at MRB Partners. “If we hadn’t gone through the April fiasco, I think that the markets would be nervous right now and more negative.”
Based on MRB research, fixed-income “investors are still too complacent on the long-run [developed market] inflation outlook, especially in the market-leading U.S.”
Phillip Colmar, managing partner and global strategist at MRB Partners, said in a client note on Thursday that prior instances where confidence has dropped so rapidly have meant steep bear markets for stocks. For example, during the pandemic, in the Global Financial Crisis, and during the 1929 crash caused in part by the Smoot-Hawley tariffs.
“We are wary of near-term bounces in risk asset markets, as the U.S. and global economic damage from the trade war is still highly uncertain. Moreover, the war is far from over despite this week’s 90-day pause on some tariffs,” analysts from MRB Partners said in a recent note.
Phillip Colmar, Managing Partner, was featured in Business Insider’s Oracles of Wall Street list once again for 2024!
Colmar leaned against the overwhelming market consensus that the Fed was poised to slash rates early in the year.
He said in January that the economy didn’t require rate cuts, and that the Fed signaling them would essentially lead to a scenario where financial conditions eased materially, supporting risk-taking, strong economic growth, and making inflation stickier. This would delay Fed rate cuts and hinder its ability to easy substantially.
‘U.S. equities, the dollar and Treasury yields have all risen sharply in response to better-than-expected U.S. economic data and have received an additional boost from the election outcome,’ said MRB Partners global strategist Phillip Colmar. ‘However,’ he added,’investors should be careful not to be dogmatic in their views and positioning since the policies proposed by President-elect Trump are a conflicting mix of pro-growth fiscal stimulus and stagflationary isolationism.’
“Earnings are decent and central banks are cutting, which is positive for equities” said Phillip Colmar, Managing Partner at MRB Partners. “However, the rates that matter right now are bond yields, which are rising”.
MRB Partners’ U.S. Strategist Prajakta Bhide noted that the Fed is underestimating the strength of the economy and inflation and “the risk is that the Fed will have to backtrack on rate cuts later this year or in 2025, similar to the policy error made in 2021”.
“Today is a bit of the defensive rotation getting overdone,” said Phillip Colmar, global strategist at MRB Partners. “You end up with a lot of volatility as people get back from the summer, because we had markets positioned in a way that was set up for a lot — in the sense that we had high tech flyers and the Fed trying to justify rate cuts.”
“Aggressively selling stocks on the notion that Fed rate cuts are bad for risk assets is premature based on the weight of the economic evidence” notes Salvatore Ruscitti, U.S. equity strategist at MRB Partners.
Phillip Colmar, Managing Partner at MRB Partners noted that investors continued to buy bonds on bets for a deep Fed rate-cutting cycle, but these hopes are misplaced, as the economy is solid and inflation remains sticky.
Phillip Colmar, MRB Partners Global Strategist, noted that the latest CPI release provided the Fed and bond investors some temporary comfort after the reacceleration in Q1, but inflation remains sticky at elevated levels, which will limit the window for rate cuts.
MRB Partners U.S. Equity Strategist Salvatore Ruscitti noted that the market’s initial focus on the lack of upside surprises in net interest income for U.S. banks was shortsighted and missed the more important takeaway, which is that the outlook for overall bank earnings is one of ongoing resiliency.
MRB Partners global strategist Phillip Colmar spoke with Investing.com following the most recent Federal Reserve meeting. He noted that the data is likely to temporarily ebb in support of the Fed’s dovish bias, but that the underlying trend of solid economic growth and sticky inflation will persist, limiting the central bank’s ability to cut.
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“The bond market is waking up to the fact that inflation is stickier than we thought,” said Phillip Colmar, managing partner at the research firm MRB Partners. “That is causing a lot of volatility in equities.” Whereas optimism for a so-called soft landing of the economy buoyed a broad array of stocks starting late last year, Colmar expects choppy waters ahead. “It is not a buy-everything rally now,” he said.
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“The market is very attuned to inflation because Powell said the Fed doesn’t have enough evidence of inflation easing,” said Phillip Colmar of MRB Partners. “The components that drive inflation, were above trend in the GDP release, so he’s not going to have the confidence he needs to cut rates.”
“We would not add gold exposure at current prices, and view it as vulnerable on a 6-12 month horizon as forward markets will further unwind Fed rate cut expectations and bond yields have more upside,” Strategists at MRB Partners said in a Friday note.
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“The prevailing consensus is that inflation’s recent pickup is an anomaly, and that inflation will return to its low pre-pandemic run-rate ahead,” says MRB Partners. “The last three CPI reports support MRB’s view that the consensus is mistaken.”
However, Peter Perkins, partner, global strategy and regional equities at research firm MRB Partners, cautioned that Japanese stocks are overbought and therefore vulnerable to a consolidation or correction phase.
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“U.S. CPI inflation was hotter than expected yet again in March, narrowing the window further for Federal Reserve rate cuts. The past few months are consistent with our view that inflation will bottom out closer to 4% than 2%, and well above what is expected by the central bank and bond market.” – Phillip Colmar, managing partner and global strategist at MRB Partners.
The strength of the U.S. economy has continued to surprise even stock-market bulls, consistent with our view said Phillip Colmar, managing partner at MRB Partners. All the economic data has come in stronger than expected. We are seeing a pickup in manufacturing activity; the services sector is strong; we’ve even seen a pickup in housing, which is interest-rate sensitive.
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“When the ISM data bounced up above the 50 line, it wiped out recession bets for a lot of people and also pulled forward or unwound rate cut expectations,” said Phillip Colmar, global strategist at MRB Partners in New York.
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Inflation has also proved to be slightly stickier than the Fed would like, and it could stay that way, prompting the central bank to leave rates higher for longer. Higher inflation could cause long-term bond yields to rise further, according to Phillip Colmar, managing partner at MRB Partners.
“Our view is that as long as bond yields can consolidate around current levels, the equity market does have the green light to go higher, and we expect a broader participation in that rally, which we’ve already started to see,” Phillip Colmar global macro strategist at MRB Partners told Investing.com’s Yasin Ebrahim on Wednesday.
PHILLIP COLMAR, GLOBAL STRATEGIST, MRB PARTNERS, NEW YORK
“Sticky inflation seems to be very much intact at this point.
“This is problematic for the bond market and the Fed’s view that inflation’s ultimately coming down to that 2% target.
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Phillip Colmar, global strategist at MRB Partners, noted “U.S. employment continues to expand at a very healthy pace on a trend basis, driven by strong corporate profitability and signals an economic expansion that is still very robust and a labor market that is very tight. The Federal Reserve may have a desire to ease, but there is no indication that the economy requires rate cuts.”
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Recent research by Peter Perkins, MRB Partners Global Strategist, was featured in Ying Shan Lee’s CNBC article. Peter notes that the Nikkei is not a great gauge for the broader economy and the rise does not signal a dramatic improvement in Japan’s economic outlook. Nonetheless, it reflects a reduced risk of chronic deflation.
Phillip Colmar, managing partner and global strategist at Macro Research Board, said that a “constructive” sector rotation is occurring in response to the potential for a “no-landing” outcome in the U.S. economy, or solid above-trend economic growth. The key will be that bond yields stay calm.
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“It becomes an underlying instrument to set interest rate structures across the entire economy,” said Phillip Colmar, managing partner and global strategist at research firm MRB Partners.
Phillip Colmar, global strategist at MRB Partners, weighed in on the market’s rally highlighted by Nvidia’s significant gains and its impact on the broader tech sector. He noted the current rally’s potential risks, given sky-high earnings expectations and valuations within the tech sector, which doesn’t leave room for disappointment or an ongoing rise in bond yields.
MRB Partners’ Global Strategist Phillip Colmar noted that the risk to the Goldilocks scenario was that we weren’t going to have a soft landing with enough slack in the economy building up to bring down inflation.
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Phillip Colmar spoke with CNBC reporter Hakyung Kim about the impact Megacap U.S. stocks are having on the global equity market, the increased concentration of risks, and alternative parts of the market investors should consider for diversification.
Phillip Colmar, Global Strategist at MRB Partners was featured in this edition of the Wealth Management Solutions Report as the newest Investment Solutions Leader. Phillip shares market views for 2024 and outlines the impact for wealth managers.
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“I don’t think rate cuts are warranted and it could be a policy mistake to cut rates that will have intermediate-term inflationary consequences,” Phillip Colmar, global macro strategist at MRB Partners told Investing.com’s Yasin Ebrahim in a recent interview, following the Fed’s Jan. 31 decision to keep rates steady and downplay a March cut.
Phillip Colmar, global strategist at MRB Partners, noted that “Fed Chair Powell went out of his way this week to suggest that disinflation and Fed rate cuts are independent of softer or below-trend economic growth,” he added. “However, today’s payroll release is problematic for the Fed.” Colmar added that the latest jobs numbers suggest that inflation will bottom out this year well above the Fed’s 2% target, limiting the amount of possible interest cuts.
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“Fed Chair Powell went out of his way this week to suggest that disinflation and Fed rate cuts are independent of softer or below trend economic growth. However, today’s payroll release is problematic for the Fed, which has doubled down on ‘transitory.’ The underlying trend in core services inflation ex-shelter or supercore inflation (a major component of the core PCE basket) is driven by wage trends. The latest numbers suggest that inflation will bottom this year well above the Fed’s target, limiting the amount of rate cuts.” – Phillip Colmar, global strategist at MRB Partners
Phillip Colmar, global strategist at MRB Partners contributes to the “2024 In Charts” publication.
Canada has a widespread housing affordability crisis owing to sky-high home prices and the surge in mortgage rates. The Bank of Canada’s housing affordability index is now at its worst reading since the early 1980s.
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“Right now, the market’s pretty quiet, but I don’t think it’ll be quiet all year,” said Phillip Colmar, Global Strategist at MRB Partners. “We’ve fully priced this Goldilocks soft landing scenario. What’s next? It’s probably ‘no landing,’ which means the bond yields are probably not going to stay as anchored as they are, some of those rate cuts have come back out and then volatility comes back into the equity market … and then it’s not a buy-everything rally that we saw at the year end.”
The recent dramatic easing in monetary policy is likely to result in a “no landing,” or continued above-trend growth that will limit how much the Fed can cut rates, said Phillip Colmar, global strategist at MRB Partners in New York. “All major asset classes, including equities, suggest that monetary conditions are plentiful.”
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Phillip Colmar, Managing Partner, was featured in Business Insider’s Oracles of Wall Street list for 2023!
Colmar said Treasury yields would stay relatively calm for the first several months of the year — they did — and then managed to time the spike in yields impressively. The call for higher bond yields was tied in with his view the economy would avoid a recession this year, which he expressed in December 2022 and reiterated in May.
Some investors believe that inflation will stay stickier than many market participants expect. They make a case for TIPS, or Treasury inflation-protected securities. Phillip Colmar, managing partner and global strategist at MRB Partners, doesn’t see inflation returning to the Fed’s target rate of 2% anytime soon. Instead, he sees it settling higher, with serious consequences for retirees on a fixed income.
Commercial real estate is tricky with different areas of uncertainty depending on geographic area and type, like residential versus office. “Both sides look terrible now in Canada” says Phillip Colmar, managing partner and global strategist at MRB Partners. “Unfortunately, the pensions went into that and real estate’s in trouble.”
Phillip Colmar, a global strategist at MRB Partners, also believes returns for the S&P 500 over the long-term will be lackluster given higher valuations. Over the next 10 years, his firm sees US stocks having a compound annual growth rate of around 1%, while non-US stocks will grow at around 4% per year.
Phillip Colmar, managing partner and global macro strategist at MRB Partners, similarly said that equities continue to be driven by the bond market. Stocks remain slightly overbought, he said, adding that the economy remains “reasonably resilient,” making it harder for future rate cuts to be justified.
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