This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
GDP’s Mixed Signals
Daily Insights
BCA Research
April 28: The advance gross-domestic-product estimate showed a slowdown in the pace of U.S. economic growth from 2.6% to 1.1% in first-quarter 2023, below expectations of 1.9%. However, the details of the report painted a mixed picture of economic conditions.
On the one hand, consumption growth accelerated sharply from 1.0% to 3.7%, albeit slightly weaker than consensus estimates calling for a 4.0% increase. A pickup in spending on both goods (which increased by 6.5% following a 0.1% decline) and services (which rose by 2.3% following 1.6%) contributed to this dynamic.
Moreover, final sales to private domestic purchasers, which strips out the misleading components of inventories and imports and therefore is a good indicator of underlying growth, increased by 2.9% following 0% growth in the final quarter of 2022.
On the other hand, nonresidential fixed investment growth slowed sharply from 4.0% to 0.7%. Moreover, a 4.2% contraction in residential fixed investment (the eighth consecutive quarterly decrease) and a decline in private inventory investment had a negative impact on GDP, partially offsetting the positive contribution from increased consumption.
Rouyaka Ibramhim
Real Estate Distress
Market Commentary
Cresset
April 27: The commercial real estate sector is already feeling the impact of two converging trends: tighter liquidity and weaker fundamentals. The Covid lockdown altered the way Americans work and spend, particularly in metropolitan areas.
At the same time, small and midsize banks have reduced the availability of credit, particularly for commercial real estate. The proliferation of remote work has had a profound impact on the office sector and on supporting real estate in the downtown business districts, like retail and convention hotels.
We believe that fundamentals in the office market will bifurcate as tenants upgrade their office space, leaving class “A” product fully occupied and class “B” and below bearing the brunt of vacancies….
The segment of CRE most vulnerable to retrenchment in the banking sector would be smaller, local projects with loan values below $20 million, including multifamily, retail, office, and hotel, whose loan balances are too small for money-center banks, and whose loans don’t qualify for inclusion in commercial mortgage-backed securities. Distress will emerge among recently originated, highly leveraged projects whose loans need to be refinanced. We anticipate a swath of insolvency creating rescue opportunities at attractive capitalization rates for equity buyers over the next 12 to 18 months.
Jack Ablin
Gold Wrestles with $2,000
The Weekly Speculator
Marketfield Asset Management
April 27: Gold continues to dance around the $2,000 level but hasn’t yet been able to take the decisive step through this level to challenge its all-time high. [Last] week saw gold top $2,012 on Thursday, then fall back to $1,971 on Friday morning before hitting $2,009 on Wednesday morning and then dropping back to close at $1989.22. Meanwhile support at the 50-day moving average has moved up to $1,927 and should start to become a factor in short-term prices over the next couple of weeks. We still view the environment as bullish for gold, but the metal needs to take advantage of this to bring sufficient new capital into the market to establish a durable foothold above $2,000.
Michael Shaoul, Timothy Brackett
Bear-Market Finale
Equity and Derivatives Strategy
Evercore ISI
April 25: While a line of thought goes “the market may have already bottomed in October, given that this is the most anticipated recession of all time,” we think that “it isn’t different this time.” No bear market has ever ended before the recession began, and no bear market has ended without a cathartic volatility spike. In this respect, 2011 is a blueprint for the likely stock market path to a second-half 2023 bear-market finale and the start of a multiyear buy-and-hold bull market.
Julian Emanuel, Michael Chu, Barak Hurvitz
Too Dependent on the Fed
The passage below is excerpted from Robinson Value Management’s first-quarter letter.
April 25: Recent innovations in monetary policy such as the “facilities” announced after each [bank] blowup appear to fall short of the benign goal of lasting stability. Most unsettling is the Federal Reserve’s growing inability to reduce/normalize its balance sheet without another financial crisis erupting. The economy and markets are addicted to the Fed’s elixir, always needing more. To avoid bad outcomes, the Fed accommodates (what else can a committee do?) but the direction doesn’t feel good.
Amy Abbey Robinson, Charles W. Robinson III
Broker/Dealer Stocks
Momentum Strategies Report
Clif Droke Market Analysis
April 25: One of my favorite leading indicators, the broker/dealer stocks, are hanging tough despite an uncertain financial- sector outlook (in view of First Republic). The NYSE Securities Broker/Dealer Index (ticker: XBD) is also within reach of its 50-day moving average and could manage to pierce above this trend line with a relatively small effort. Consequently, I’d view a breakout above the 50-day line in XBD as bullish—especially if it accompanies an upside break in the
Financial Select Sector SPDR
exchange-traded fund (XLF).
Clif Droke
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