I’m an investor in an early stage global macro fund. Each month, we publish a newsletter with our thoughts on the market and our fund’s performance. I’m now publishing an edited version of that newsletter here, so a broader audience can participate in the conversation.

In our March letter, we reiterated our view that the short-term bounce in March doesn’t necessarily mean the beginning of a sustainable recovery.  We went on to note that the downside catalysts remain unchanged, and in some cases are getting worse: (1) slowing corporate earnings, (2) oil and other commodities continuing to trend up, (3) the Fed tapering, (4) an unclear resolution to geopolitical tensions.  And further noted that the bounce would be a great opportunity to raise cash.

Our views on the broader market remain relatively in line with what we stated last month.  Our macroeconomic model shows that the balance of probabilities is in favor of the bottom not yet being in for this emerging bear market.  Of course, we must remember that nothing goes up or down in a straight line.  Should more downside action be in store, we can expect that there will be bounces to lower highs along the way.  These bounces will be good selling opportunities.  

We remain unconvinced that the Fed will stick to the plan of raising rates throughout all of 2022 and 2023.  Our macro model suggests that deflationary catalysts will arise in the months to come that give them the aircover they need to change direction and continue printing money (or, at the very least, pause tightening.)  This may be a requirement to avoid a backup in the repo markets (yet again.)  

A summary of how we feel about equity markets over the next month, two quarters, and year as follows:

• • 30 days: Neutral
  • 180 days: Bearish
  • 365 days: Slightly Bullish

As we think about the months to come, we are starting to gain conviction that the better places to invest are in the energy complex (oil, natural gas, etc), precious metals (gold, silver, platinum, etc.), and rare earths (lithium, cobalt, etc.)  Our strategies have limited exposures to these categories, which is something we plan to explore in the months to come.  

Our view of the likely bottom for this S&P 500 drawdown is 3250, which we think we could hit before EOY 2022.  Yet, as we state above, there will be a catalyst for another upswing in the markets when the Fed changes course.  With these two things in mind, we are modifying our EOY price target on the S&P 500 down from 4850 to 4450. 

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