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- Back to the office, equities will sell off. We expect that equities will trade off when investors return to the office in January in anticipation of soft earnings. Technology stocks will be hit the hardest.
- Another leg down on EPS reports. When earnings are reported in January and early February, there will be another leg down for stocks (the more pronounced leg), as 2023 earnings guidance will be weak given that management teams have limited visibility into the demand side as well as on the cost side for a number of inputs.
- QT and rate hikes still in effect. The Fed FOMC meeting on January 31st/February 1st will likely add further fuel to the sell off. The Fed will be in tightening mode (we still have negative real interest rates don’t forget), with the Fed Funds Rate inching higher and more importantly QT will still be in effect. A higher Fed Funds Rate combined with QT will push yields higher and risk assets lower.
- CPI will be released on January 12th. Our view is that CPI will continue to move down modestly, although we are a long way from 2% and I expect that we will find a sticking point in the 4-5% range. Food and Energy are the wildcards, especially energy as oil prices have recovered from their early December lows.
- The Great Redemption. Retail investors will continue to redeem equities and there will be a general rotation to Fixed Income as investors gain religion that interest rates will remain elevated for longer than they had originally anticipated.
- Weaker consumer. The consumer will continue to weaken given depleted savings, lower home values, lower portfolio values, higher consumer prices and higher job losses (we expect layoffs to increase after January 1st.)