Churchill Management - Commentary
by Craig Love, on October 13, 2021
- The market had its biggest decline of the year as September lived up to its penchant for being the historically worst month for stocks.
- The 10-year Treasury yield rose sharply to 1.74% in February before going back to 1.2%. The recent pop has it probing those highs again, returning to 1.6%.
- There was no shortage of reasons for the decline. The mainstream media pivoted away from the previous myopic focus on inflation and stimulus, playing up the debt ceiling.
- In our opinion inflation and the withdrawal of stimulus is, and will remain in the driver's seat.
- Inflation has been more stubborn than the central banks have predicted. Plus, recently we have seen them feel the need to double down and reiterate their views that inflation is transitory. While central banks have a good case to make that inflation may be transitory, the temporary supply bottlenecks they attribute to the short-term inflation spikes have been slow to get ironed out.
- There has also been talk that we are in a taper tantrum redux similar to that of 2013 – especially in light of the Federal Reserve explicitly setting the expectations to reduce asset purchases later this year while tapering down to zero by the middle of 2022.
- In our view, tapering is not tightening. The Fed will still be buying significant amounts of assets until the middle of next year. Also, rate hikes are likely another year away.
- A constructive view of the market is likely warranted, with the Fed still very accommodative, and only beginning on a slow march to neutral. The economy is likely in good shape, too, as there is plenty of spending power available with $2.4 trillion in excess savings.
- Of course, one could also argue that this could be the driver for inflation. The prospect of higher inflation and a persistent, but shallow breadth divergence on the NYSE did encourage us to take a small step in reducing some exposure in Growth – an area that tends to underperform with rising rates and higher inflation.
CHURCHILL MANAGEMENT GROUP
Source: Churchill Management Group
** This report is meant to inform the reader of our current market opinion, which we, as professional money managers, use in our decision-making. It should be noted that stock market and bond market data are subject to varying interpretations and any one interpretation will not necessarily guarantee investment success. The information obtained from the sources specified herein and used as basis for our current market opinion is believed reliable, but we do not guarantee the accuracy of such information.