Today's Post - https://bahnsen.co/40eo9VP

I would say, at this point, the market is definitely pricing in yet another rate hike at the next FOMC meeting two weeks from today (futures are up to 87% implied odds). Markets obviously haven’t cared much. Bond yields today didn’t move a lot. Sometimes you have to report what is and not what ought to be, and sometimes what is or what will be is different than what is or what appeared to be just two weeks sooner. Nevertheless, I take it not merely as the Fed likely hiking one more quarter-point in May but the Fed likely cutting more aggressively when they swing the pendulum back the other way. I don’t like any of it, to be honest.

The spread between BBB’s and BB’s (low-end investment grade and high-end junk bonds) is a mere 150 basis points – well below the 200 basis points, we have seen a few times in recent months when it looks like credit is about to weaken. Corporate credit has hung in there remarkably well throughout this cycle, for now, despite all the recession talks and doom and gloom of Fed tightening. It almost feels like the Fed can’t be satisfied until they break corporate credit, only, when they do (if they do?), they then will feel like they have to immediately put it back together again, but they can’t put it back together again if they don’t break it first, and I have the distinct impression that is frustrating them.

As for what to like within markets, we like dividend growth stocks, always and forever (surprise). But it does seem to me the clear trend for extracting liquidity from the system favors value over growth and less shiny assets than those that have been shining. We shall see.

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