US stocks are trading lower to start the year as rallies in Asia, and Europe fail to carry over to the US, where concerns around higher rates, slowing growth and elevated inflation abound; indeed, old problems for a New Year.

Two factors significantly contributed to the 2022 Tech Bubble 2 deflation: (1) the Fed and (2) the Ukraine War, and both are still front and center.

Still, stricter competition and higher interest rates have depressed valuations, while the rest of the market faces a more challenging macro environment.

And while de-rating in growth stocks tied to rising bond yields was last year’s storyline. This year it is about demand and the prospect of a recession.

Pricing power has been surprisingly pervasive, but corporate margins are likely to be squeezed if inflation does not fall fast enough, providing a new headwind for stocks we did not experience in 2022.

 

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The disconnect between the resilience of the US economy in 2022 and the downdraft experienced by stocks has been a critical narrative of the past year. And whether this disconnect continues, the economy matches the market downdraft, or the stocks rebound in the wake of an economic soft landing, are providing a whirlwind of confusion. Hence given the pervasive uncertainty and unpredictable market mood swings, it makes for a highly challenging environment for Index based investors.

Apple took a hit after a Nikkei report suggested the world’s most valuable company may be dialling back production marred by COVID disruptions at the world’s largest iPhone plant, leaving the market without any publicly-traded $2 trillion companies to boast about.

It is fair to say Tuesday marked an ill-omened start for Wall Street in 2023, even as US shares attempted to retrace losses later in the session. Demand jitters will likely define the market and macro milieu for the near future.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT