Hello and welcome back to TQI's Weekly Newsletter series. In today's note, we will discuss the state of markets, an investing style, and a merger arbitrage idea.The summer rally now seems like a distant memory; however, in mid-August people were talking about new all-time highs for the stock market. At the time, QQQ was trading at around 330-335 (up from June lows of 270), and in TQI Weekly - Issue #5: A New Bull Market Or Just Another Bear Market Rally?, we concluded that the rally was likely to be a bear market rally due to fundamental and technical factors. Unfortunately, my bearish take has proven to be prescient. As long-term investors, this unwind in equities is painful for all of us, but we must continue to invest more during this period of heightened volatility. After all, history shows that great fortunes are built in bear markets. At its recently concluded FOMC meeting, the FED hiked the federal funds rate by 75 bps to a range of 3-3.25%, and Jerome Powell guided for another 100-125 bps hike over the next two meetings (by the end of 2022). The dot plot is now indicating interest rates rising as high as 4.9% in 2023, and FED Chair said they are willing to do more if required. Globally, most central banks are tightening their monetary policies to reign in the inflation genie, and while we are seeing signs of cooling in forward-inflation data, the threat of FED sleepwalking the economy into a deep recession is taking over investor psyche. So far, we have seen a normalization in trading multiples with Nasdaq-100's P/E declining from 36x in 2021 to ~22x now. And while there may be some more room for compression here, the real fear in my mind is an earnings recession!
Share this post
TQI Weekly - Issue #7: Markets Re-testing…
Share this post
Hello and welcome back to TQI's Weekly Newsletter series. In today's note, we will discuss the state of markets, an investing style, and a merger arbitrage idea.The summer rally now seems like a distant memory; however, in mid-August people were talking about new all-time highs for the stock market. At the time, QQQ was trading at around 330-335 (up from June lows of 270), and in TQI Weekly - Issue #5: A New Bull Market Or Just Another Bear Market Rally?, we concluded that the rally was likely to be a bear market rally due to fundamental and technical factors. Unfortunately, my bearish take has proven to be prescient. As long-term investors, this unwind in equities is painful for all of us, but we must continue to invest more during this period of heightened volatility. After all, history shows that great fortunes are built in bear markets. At its recently concluded FOMC meeting, the FED hiked the federal funds rate by 75 bps to a range of 3-3.25%, and Jerome Powell guided for another 100-125 bps hike over the next two meetings (by the end of 2022). The dot plot is now indicating interest rates rising as high as 4.9% in 2023, and FED Chair said they are willing to do more if required. Globally, most central banks are tightening their monetary policies to reign in the inflation genie, and while we are seeing signs of cooling in forward-inflation data, the threat of FED sleepwalking the economy into a deep recession is taking over investor psyche. So far, we have seen a normalization in trading multiples with Nasdaq-100's P/E declining from 36x in 2021 to ~22x now. And while there may be some more room for compression here, the real fear in my mind is an earnings recession!