“I do not believe that one can be very bearish given where the index is already. There is enough room for optimism; if not a big rally, then a relief rally and some sort of stability is nearly there for one to pick up their next long positions from,” says Manish Singh, CIO, Crossbridge Capital LLP. Edited excerpts:
What are the factors that US markets are looking at right now?
The Ukraine factor remains because clearly there is no resolution at this stage. So far, what we have heard from the authorities makes it very clear that the involvement of the US on the ground is just not happening and is unlikely or very unlikely to happen, and that is a sort of assurance that at least the big economies are not going to get entangled in it.
What are the factors that US markets are looking at right now?
The Ukraine factor remains because clearly there is no resolution at this stage. So far, what we have heard from the authorities makes it very clear that the involvement of the US on the ground is just not happening and is unlikely or very unlikely to happen, and that is a sort of assurance that at least the big economies are not going to get entangled in it.
The second aspect is that we are looking at the Federal Reserve meeting which is in three weeks from now. The inflation number and Federal Reserve are a much bigger factor that everyone is going to look at.
Thirdly, there are signs of a possible dialogue between Russia and Ukraine and that should come as a welcome relief. But again if it is at the condition that Ukrainian forces surrender then I am not sure how far the talks are going to go, if it ever starts, given it is a very sticky situation for Ukraine to be in. I would still say that the Fed and inflation factors will weigh more on the market than the Ukraine factor.
What does next week hold for markets?
The inflation factor remains. The last CPI print in the US was 7.5% and that did not include a lot of factors like rent increase because that is a big part of the basket in the US, and those numbers so far have been on the lower side. So, if we see an uptick in that, then the inflation number could be still higher though there have been a lot of other positive things. If we look at the disposable income, it is now growing below trend after three-quarters of above-trend growth. The savings are drying out and that will have an effect on consumption. So there is a bit of a balancing act going on.
It is almost like the market is there where it was in 2016 when the rate rise had started. At that time, the market bottomed after the first rate hike. If the same pattern was to repeat this time then I would expect the market to the bottom end of March, early April. From then on, it would steadily increase because by that time you would have had two sets of data in terms of unemployment and inflation; one would know where we are positioned.
People who are bearish also have to bear in two factors. If this Ukraine situation de-escalates very quickly then that will be seen as a positive. If there is a turn in inflation numbers in the US, then that will be seen as a positive. So, I do not believe that one can be very bearish given where the index is already. There is enough room for optimism; if not a big rally, then a relief rally and some sort of stability is nearly there for one to pick up their next long positions from.
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