From the desk of Willie Delwiche.

It’s difficult to stay on top of things if you don’t periodically pause for reflection. 

What did you do yesterday that you want to do more of tomorrow? What do you want to do less of tomorrow? Rarely is any single day a make or break situation. But success over time is about leaning into the things that work and leaning away from the things that don’t work.

From an investing perspective, it’s about trusting prices and their trends. This involves tilting toward the parts of the market that are moving higher, while avoiding areas that are moving lower. It’s about avoiding “should” and dealing with “is”. The market is dealing with a negative reaction to disappointing data from several stocks that are in well-established downtrends as I type. That really shouldn’t be that big of a surprise. Stocks making new lows tend to be those in downtrends, while those making new highs tend to be those that are in uptrends. That’s the way the world works.

From the desk of Willie Delwiche.

With the weight of the evidence turning neutral and our tactical risk management model arguing for more caution, we have reduced our equity exposure and raised some cash in our Cyclical and Tactical Opportunity Portfolios.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

There was plenty of focus on the Fed this week - not so much for what they did (which was nothing), but for what they said. After a benign written statement, Fed Chair Powell took to the podium at his post-FOMC meeting press conference and spent a lot of time talking about how inflation has been more persistent than the Fed had hoped it would be.  From the Fed’s perspective it is now time to raise rates rather than to let the negative effects of sustained higher inflation fester in the economy. Data released in the wake of the FOMC meeting shows that higher inflation remains persistent, in terms of both degree and duration. 

Inflation based on the Trimmed Mean PCE is at its highest level since the early 90’s, based on the Core PCE it’s at its highest level since the early 80’s.There are only a few times in the history of this data that inflation has risen this many months in row. The only times we’ve experienced a more sustained rise in inflation were in 2012 (coming off the secular low) and in the 1970’s. So far this cycle the Fed has aided & abetted inflation, going forward it’s poised to fight it.

This is the video recording of the January 27th Weekly Town Hall w/ Willie Delwiche

01/27/22 2:00 PM ET

From the desk of Willie Delwiche.

What a week…  

What a month…  

What a start to the year!

We’ve seen pockets of strength in the market. But by and large, it’s been a tough slog to start 2022. In the words of an All Star Charts colleague, it’s starting to look a bit like “no-man’s land” out there as stocks have tried (but generally failed) to produce some positive momentum after the worst start ever to a new year. 

Even if we were able to get back above some key levels, where would that put us? Back into the sideways mess that characterized most of 2021. Not breaking down is a necessary – but not sufficient – condition for breaking out.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• Corporate bond yield momentum a headwind for stocks 
• Growth and inflation leave little excess liquidity for financial markets
• Fed poised to follow global central banks into tightening mode

Plenty of eyes are on the Fed this week. The decisions it makes this year with respect to tapering its asset purchases, beginning a rate hiking cycle, and the timing of its balance sheet wind down will reverberate through the financial markets. This week’s meeting is more about posture and communication than it is about action - even with that I would not be surprised by hawkish dissents from members of the committee who want to accelerate the time table for any or all of the decisions mentioned above. Before getting to possible equity market implications of interest rate hikes, we would do well to acknowledge that liquidity conditions have already begun to deteriorate.