First Up

We will deliver The MM Annual Outlook Report in the coming weeks but today’s first report for 2023 is likely to provide some clues on our current thinking for the coming year with stock/sector volatility looking set to be firmly on the menu yet again i.e. another year for the Active Investor. In a number of key financial markets, we have strong views on where they are travelling over the next 2-5 years but the next 3-6 months could easily see 10-20% reversions as varying dominant cycle thematic come in and out of favour such is the nature of today’s rapidly evolving macroeconomic landscape hence in our opinion investors must manage risk and be often prepared to “buy weakness and sell strength”, in a similar manner to 2022.

• MM, like most people, believes that we have seen lifetime lows in-bond yield heralding the end to an entrenched ~40-year decline i.e. High in bonds = low in yields.

This hugely influential event is going to have far-reaching ramifications on the stock market, we have a few pertinent thoughts that are likely to be reiterated and expanded upon a few times over the year:

• This major regime change is likely to have a significant impact on many financial markets, especially we believe on respective sector performance e.g. last year’s underperformance by growth names could just be the beginning.
• In the US we have already seen the worst drawdown in 100 years for the classic 60/40 portfolio (60% stocks / 40% bonds) i.e. MM is convinced the next few years are likely to set new norms across many financial markets.
• A 16% correction by the ASX200 feels mild if we have seen the end to a multi-decade bull market in bonds i.e. one of the many reasons we believe that volatility remains on the menu.

Assuming we are correct and bond yields are going up over the coming years, although we are bearish over the coming months, it’s extremely hard to imagine that equities won’t have another look on the downside through 2023 i.e. flexibility will again be key and subscribers should expect MM to migrate up & down the risk curve a few times over the coming quarters.

• Food for thought – We are moving towards the most forecasted recession ever yet the ASX200 is going to open less than 4% below its all-time high this morning i.e. somebodies wrong!

One thing is for certain, this year is poised to be exciting and fascinating for stocks, investors are relatively bearish and cashed up which is bullish but most of the macro factors are worrying at best.