What to watch in the week ahead 6/26

Key takeaways

  • While the market has stabilized this week, the S&P 500’s high level of concentration appears to suggest – in our view – that there may be some more room for further equity derating. 

  • Q1 GDP annualized final number will be published on Wednesday, while the advanced report for May capital goods orders, a revealing leading indicator, will be released on Monday next week.

  • Last week, Yieldstreet launched a revamped motorcycle loan offering and a new round of structured notes

Has the market bottomed?

After the US equity market officially entered bear territory last week, stocks have been treading water, as investors are trying to gauge whether the selloff in the past four months has made valuations attractive again. Importantly, given the high level of concentration in tech stocks of indexes such as the S&P 500, which is often used as a proxy for the entire US equity market, it is not unreasonable to think there may be room for further adjustments. A potential future positive catalyst could be the growth/inflation mix improving, with signs that inflation is peaking and growth is stabilizing. 

On the fixed income front, the US 10-yr Treasury yield remains relatively stable, despite the changes in the potential terminal short-term rates. The curve has flattened after the latest hike, and, depending on the day, is sometimes inverted (the 10-yr yield is lower than the 5-yr one, but crucially not of the 2-yr one). This can point to a potential economic slowdown, and to a lower inflation rate in the medium term. 

Major investment houses and prominent financial journalists have been arguing that odds of an upcoming recession have increased, although there seems to be no agreement on the timing. However, despite financial conditions tightening and an energy shock caused by the war in Ukraine, a period of 1970s-style stagflation is unlikely, in our view, as central banks are determined to bring demand-driven inflation under control – at the cost of causing a recession – and supply-side inflation is expected to subside when supply-chain issues are finally resolved.

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The state of real estate

As weekly mortgage applications will be released on Wednesday – perhaps slightly more upbeat as a mortgage rate dip in early June may have helped on the margins – according to John Burns Real Estate Consulting’s latest survey, “foot traffic and sales continue to slow (down 20%–50% from April/May) across buyer segments.” 

Crucially, first-time buyers are struggling to qualify or get comfortable with higher monthly payments, while high net worth individuals remain concerned by stock market declines – rather than by higher rates. 

GDP and cap goods orders’ preliminary report 

The Q1 2022 GDP third and final release is scheduled for Wednesday next week. As a reminder, the previous update, which was published on May 26, showed negative 1.5% growth. 

The capital goods preliminary May report will also be released on Wednesday. As a reminder, cap goods orders are a good gauge of business confidence, as they are a proxy for companies’ appetite for long-term investments. New orders had increased less than expected in April, suggesting businesses slowed equipment spending, and the May number may give investors more clarity on the economic outlook.

Yieldstreet’s launches

In the context of a turbulent macroeconomic outlook, Yieldstreet launched a third motorcycle loan portfolio last week, which includes seasoned and performing consumer loans backed by high-end motorcycles, with brands such as Harley Davidson, Suzuki, and Kawasaki. It also launched an additional tranche of structured notes, which can help shield investors from further public market losses and volatility given their built-in downside protection characteristics.

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