🧸Old is Gold🧽

Nervousness in the equity market wasn’t much of a surprise. What spooked investors was the scale of the decline in the general market. The least resistance path is for the equity to continue to trend lower. At first, the sell-off in Treasuries push yields higher as it hit almost 3.2% on Monday before settling around the 3% level. 

Nonetheless, from 1.51% during the low at the end of 2021, the long term inflation expectation remains slightly below 3%. High yield dents future profit stream of technology stocks rich in valuation due to their expected future growth prospects. 

Investors will also continue to weigh the risk of the Ukraine war as it seems to be a prolonged battle. 

💰A strong dollar, a threat?🗽

Many companies are increasingly facing a new headwind in their earnings. That is the strength of the USD. The adverse effects of a strong dollar are most evident in many earnings reports this quarter. 

Investors should not be surprised by large companies that make tons of overseas such that many of their earnings are in international currencies. Overseas sales of companies in the S&P 500 are around 35% to 40% of the total revenue, based on UBS analysts. 

The same revenue is worth less when valued in greenbacks as the dollar gains strength. The firmer dollar is partly a result of the Fed’s more aggressive effort to fight inflation relative to what other regions are doing with their economy. For example, the ECB has decided to keep rates unchanged as they are faced with inflation threats and the Russian war. 

Hence, investors are likely to digest the volatility associated with currency beyond significant equity movement. We will be focusing on the latest CPI data today.