The End of Free Money
Over the past week, existing new home sales, manufacturing activity, and retail sales all reported a continued deceleration of growth, with service and manufacturing activity reporting an outright contraction. A combination of slowing growth and rising interest rates is historically challenging for stocks. Stocks rallied on Friday and Monday following a WSJ article saying that the Federal Reserve was considering raising rates “only 50 bps” in December after a 75 bps rate hike in November. We believe it is ridiculous to buy stocks as it does not change the narrative of the Fed raising interest rates into a slowdown. In this week’s market update, we discuss why we remain defensive until the economic rate of change improves or the Fed starts to cut interest rates.
Key Takeaways:
- Pricing around hedges has become more attractive, and the macro backdrop remains firmly negative
- Interest rates are grinding higher across the globe despite Monday’s rally
- Investors are beginning to take out protection against corporate and sovereign debt
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