Private Wealth

Weekly Research Briefing: At Least The Markets Are Dry

January 18, 2023

Rain measured in feet and snow measured in yards. U.S. weather madness continues as the pineapple express books a full January visit. Congrats to all skiers and downspouts.

Few umbrellas are needed for equity or debt investors right now as the markets continue to see more sunshine ahead. Last week's CPI continued to normalize lower (egg prices excluded). As a result, Fed speaker hawkishness continues to soften as +25bps Fed Funds rate hike comes into focus for the February 1st FOMC meeting. The big U.S. bank stocks led off last week's earnings and after mostly in-line results, the stocks reversed from lows on the day to highs on the day (a good sign). Credit spreads continued to contract. Treasury yields continued to decline even with last week's significant issuance of 3-, 10- and 30-year debt. And the VIX traded with an 18 handle on Friday.

Elsewhere in good news, Toyota has announced plans for a significant uptick in their auto production (so auto demand and global supply chains must look better). Rio Tinto sent a more bullish macro-outlook due to the positive changes in China, the fall in energy prices and easing freight rate pressures. Emerson Electric would like to buy National Instruments for $7+ billion (so EMR must see the bottom in ISM readings). The German ZEW expectations component jumped significantly as much lower energy prices excite business outlooks. China continues to play nice with its technology industry (allows Didi to sign up new customers). And locally, the National Western Stock Show had the highest opening day of all time (60,000 human attendees) eclipsing the previous peak by 5%+.

A much more important week of earnings this week will be joined by a stack of economic releases: Retail Sales, PPI, Philly Fed, Housing Starts & Existing Home Sales. Also, lots of Fed speak. You might need another monitor this week.

As expected, the CPI joined many other price series in continuing to normalize last week...

December’s consumer price data add to a picture of inflation, across a broad range of definitions, coming down.

In fact, just as the U.S. got used to thinking high inflation could be here to stay, signs are emerging that most of the surge through 2021 and the first half of 2022 was actually transitory—as Federal Reserve officials first thought.

This doesn’t mean the inflation battle is over. Even the most favorable interpretation still leaves current, underlying inflation above the Fed’s 2% target. Nor does it mean the Fed’s initially sanguine diagnosis was right. After all, it is because the Fed discarded that diagnosis and raised interest rates sharply last year to fight inflation that some prices are starting to drop, especially of houses.

When Fed officials first used the word transitory, it was widely interpreted as “brief.” A more nuanced interpretation was that many prices were rising because of idiosyncratic supply-demand imbalances that would wash away as the economy normalized.

Normalization took far longer than almost anyone expected, but is clearly under way in several key product markets. Most intriguing, it may also be happening in the labor market, the focus of Fed thinking on how high, and for how long, rates must go.


If you use the more timely Zillow rental data instead of the BLS shelter series, the inflation data looks even more interesting...

@Lvieweconomics: US core CPI is 3.1% on an annualised Q-o-Q basis. This changes to -0.5% when you use latest Zillow rental prices instead of the BLS shelter component.

Meanwhile, incoming economic data continues to slow as Monday's Empire Fed showed...

NY Fed Manufacturing data huge miss, but prices ease: NY Fed's empire state current business conditions index down -32.9 in January vs -11.2 in December (vs. est. -9.0) as new orders index tumbles -31.1 in January vs -3.6 in December, prices paid index +33.0 in January vs +50.5 prior and state employment index at +2.8 in January vs +14.0 in December.

Hammerstone Markets

The Empire Fed attempts to lead the other regional indexes lower...


But while business outlooks see rain, consumer outlooks see the clouds clearing...

@LizAnnSonders: Official January ⁦@UMich⁩ Consumer Sentiment Index up to 64.6 vs. 60.7 est. & 59.7 prior; current conditions up to 68.6 vs. 59.4 prior; expectations up to 62 vs. 59.9 prior.

And consumers are feeling even better about the outlook for inflation...

But was there a survey question about egg prices?

The Daily Shot

As inflation data and expectations continue to rollover, so do Treasury yields...

@sstrazza: The parabolic rise in interest rates is over - here's the 5-yr violating last summer's highs and hitting its lowest level since September $FVX

The Fed wishes that the market would not be forward looking...

If this keeps up, Jerome Powell might need to come out dressed like Freddy Krueger at the next FOMC press conference.

“To be honest with you, I don’t quite know why markets are so optimistic about inflation,” said San Francisco Fed President Mary Daly after the Fed’s meeting last month. “I think of them as priced for perfection,” she said.

The Fed and many investors agree that inflation will keep declining this year as supply-chain bottlenecks abate and as housing costs slow down after soaring over the past two years. But Fed officials are nervous that the labor market’s strength could sustain wage growth that keeps inflation, as measured by a separate gauge, above their 2% target.

Fed officials, Ms. Daly said, “don’t have the luxury of pricing for perfection…. We have to imagine what the risks to inflation are.”


Listen to this Bills fan. The bond market knows what it is doing...

And here is what the bond market is telling us will happen to the Fed Funds rate...


Investment grade corporate credit default swap spreads remain in a full retreat right now...

Lower CDX spreads means investors are less worried about corporate defaults.

The Daily Shot

And Junk Bond outperformance is another sign of increased investor appetite for risk...

@alphacharts: $HYG : $IEI Breakout. They would much rather have junk bonds than treasuries. Not something you see in a bear market.

Several big bank CEO comments last week on the calls suggesting that there is not immediate trouble on the horizon...

If a meaningful recession leading to a credit crisis was around the corner, bank stocks would have traded lower, not higher after their earnings last week. But the current numbers and forward commentary didn't indicate a step up in credit worries from the biggest banks.

“The Federal Reserve has made clear that reducing inflation is its priority and will continue to take actions necessary to achieve its goal. We are starting to see the impact on consumer spend, credit, housing, and demands for goods and services, but at this point, the impact of consumers and businesses has been manageable." - Wells Fargo CEO Charles Scharf

"The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy." - JPMorgan Chase CEO Jamie Dimon

"What's different this time, frankly, and that's what we're talking about the consumer data is even with a strong rise in interest rates, you have a less tight labor market and inflation and what people are being told to worry about, you're actually seeing consumer spending consistent with a good 2% growth environment, a low inflation environment, which is good because the consumer is being appropriately conservative right now." - Bank of America CEO Brian Moynihan

"Also this is such an unusual market in the sense that you've got such a strong labor market, driven by, frankly, supply shortage over as much as demand. And we've also got the consumers with still very high savings that they're dipping into, and we're seeing a bit more of the movements happening at the bottom end of all of this -- but this is not going to be like a normal recession (inaudible) will be about the manageability and the mildness of that likely if we do have one." - Citigroup CEO Jane Fraser

The Transcript

And while the technology industry is mostly in layoff mode, some of the biggest banks are in hiring mode...

@TheTranscript_: Not everyone is making layoffs. $JPM & $BAC are hiring:

The consumer and increased business travel led American Airlines to increase its estimates...

@TheTranscript_: American Airlines significantly raises Q4 guidance: "The Company expects its Q4 total revenue to be up 16% to 17% versus the fourth quarter of 2019, which is higher than its prior guidance of up 11% to 13%"

While broad economic data shows slowing, the freight industry may have just bottomed...

At FreightWaves, Craig Fuller writes: "Early freight data and channel checks would suggest the freight market could be stabilizing and clearer skies are ahead. Over the past week, we’ve spoken with numerous freight executives who have mentioned that the first two weeks of the first quarter are shaping up better than expected, granted, expectations were incredibly low after such a weak peak."


And thus, BofA raises ratings and target prices for trucking stocks...

Trucking sector changes at Bank America as sees truck demand near floor, Rails to grow on service. Firm upgraded SNDR/WERN to Buy from Underperform and raise tgt to $29 and $50 (from $23 and $42), as turn positive on truckload ahead of the group's upturn. Upgraded ODFL to Neutral (from U/P), with a $334 PO (from $266).

Hammerstone Markets

The weirdest economic slowdown and bear market that you ever did see...

@DeanChristians: It's rare to see a cyclical group registering new multi-year highs a year after the start of a bear market. It makes you wonder.

A very, very big week of earnings releases this week...


An inflection point is seen as investors begin to believe that future profits will be "less worse"...

FMS investors expecting global profits to worsen over the next 12 months fell 12ppt MoM to net 65% from net 77% in Dec.

BofA Global

All eyes on SG&A as companies report. If SG&A can't hold, then corporate profitability will get hit...

Goldman Sachs

Stocks do not follow earnings...

Stocks are a forward-looking machine so earnings shrinking in 2023 does not mean lower prices in 2023. We can see this occurrence in past years. If anything, the market looks toward an earnings reversion.


So is a market attempt to breakout trying to tell us something about our dismal earnings outlooks?

@carlquintanilla: “Young Bull Market?” says @yardeni. We viewed October 14 “as a successful retest of the June low. So far so good. .. This is the third attempt by the bulls to keep the rally going above its 200-day moving average. We think this one may succeed.”

There was a big market breadth signal last week. When buying becomes very one sided, it usually leads to a change in direction...

@RyanDetrick: The type of strong market breadth we've seen the past few weeks is historically rare and quite bullish. One example is a breakaway momentum signal. Using data from @WalterDeemer shows that stocks are higher a yr later 23 of 24 times and up more than 20% on average a year later. (

Fund managers backing off the U.S. equity pedal and pushing down on the international equity one...

Fund managers' allocation to U.S. equities collapsed in January, with 39% saying they had an underweight position, the most since October 2005, a BofA survey of global investor views on Tuesday showed.

  • Global growth optimism hit a one-year high, while inflation expectations have peaked, according to the global Fund Manager Survey of investors, who have combined assets under management of $772 billion.
  • The survey showed investors turned bullish on euro zone equities, flipping their allocation to a 4% net overweight in January from a 10% net underweight in December.
  • Fund managers also moved into emerging market stocks, increasing their net overweight to 26%, the highest since June 2021.


BofA Global

Assisting the interest in international assets is a U.S. Dollar index that is now in a full retreat with a broken trendline and death cross...

The Daily Shot

As investors move toward international equities, expect to see less tech and more cyclical exposures in their portfolios...

Global Sachs

Also, their portfolios will find much lower valuations...

Global Sachs

One of the world's giant investment plans is researching an entry into the private equity markets...

According to Norges Bank Investment Management, the global private equity markets are 8% of the size of the public markets. This has increased from 5% in 2017. So with more value creation occurring in private equities and an ability to avoid slower growing and older public companies, the very big Norwegian Pension Fund is going to look at entering the world of private equity investing.

Norway’s gargantuan sovereign wealth fund is once again toying with the idea of investing into unlisted equities. In a Friday letter to the Norwegian Ministry of Finance, Norges Bank Investment Management, which manages the NKr12.9 trillion ($1.3 trillion; €1.2 trillion) Government Pension Fund Global, noted that an increasing share of value creation is taking place in the unlisted market and called for an investigation into whether such equities should be included within GPFG’s investable universe. “In large developed markets such as the US, the UK and the euro area, the number of listed companies has long been in decline,” it added. “Companies listing are also older and larger than before. These trends may mean that the fund misses out on an increasing share of companies’ value creation.”

As things stand, GPFG’s portfolio comprises public equities, fixed income, unlisted real estate and unlisted renewable energy. This isn’t the first time it has been linked with a possible entry into private equity: in 2017 the country’s ministry of finance convened a panel to investigate whether the fund should be granted permission to invest in PE and concluded that such a move would bolster returns. The notion was ultimately rejected.

As Private Equity International noted at the time, GPFG’s entrance to the asset class could have seismic implications. Even allocating a relatively modest 5 percent to PE over the space of several years would mean deploying approximately $65 billion. Investing at that scale would likely require a diverse mix of fund commitments, coinvestments, directs, separately managed accounts, secondaries, and more. So, will this time be different for our Scandinavian friends and herald their \entry to PE? We’d love to tell you yes, but we suspect not. With rising interest rates and some LPs telling us fixed income is looking like a more attractive bet with lower risks, GPFG’s entry to PE may not be around the corner just yet.


My colleague, Steve Brennan, spoke to Barron's about the advantages of investing in private equity...

The global private-equity market isn’t immune from the challenges posed by rocketing inflation, rising rates, and the war in Ukraine, factors that are likely to still drag down performance, deal making, and drawing in new investors, according to Preqin.

From 2021 to 2027, Preqin forecasts global private-equity strategies will post annualized returns of 13.5%, down from 15.4% from 2015 to 2021. Even with that forecasted drop, Brennan argues, “the last thing you want to do is be out of the market at any given time.”

That’s because private equity has historically delivered better returns on average than public stocks whether markets are good or bad, he says.

If public stocks are returning 15% a year or more, private equity may only deliver another 1% to 1.5% a year, on average, but when markets are negative or in single-digital territory—which many analysts forecast for 2023—private equity outperforms by 6% to 8% on average, Brennan says.

“It’s a good place to be in a market environment we are in right now, as long as you are focused on long term and not on short term and being overly sensitive to the volatility we’re seeing in the market today,” he says.


If you are on the fence about private market investing, I would strongly encourage you to watch this video...

Erik Hirsch does a great and entertaining job dispelling the myths about the private markets. Enjoy.

Myth Busters: Private Markets Edition featuring Erik Hirsch

Listen to Erik Hirsch aims to dispel common misconceptions about investing in private markets from his CAIS Talk presentation at CAIS Alternative Investment Summit.

Hamilton Lane

Finally, who said TV ads were dead? Here is the next meme-ready super ad infecting UK households...

@MoxieLondon: Edgar Wright makes a triumphant return to UK advertising in "Raise The Arches" for

@McDonaldsUK through @LeoBurnettUK


Learn more about the Hamilton Lane Strategies

Learn more


The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

Recent Content


Weekly Research Briefing: Rabbit Run

A new year and a new zodiac sign. If the tiger's job last year was to hunt, kill and devour the public markets, then mission accomplished. Let's now hope that this year's rabbit will stay alert and outrun anything that might try and tackle the markets.

Read the Research Article

Weekly Research Briefing: Time to Throw Deep?

It's third and inches from deep in your own territory and you are about to take the snap. Welcome to the current market setup.

Read the Research Article

Weekly Research Briefing: Time to Unplug

As we enter the year-end holiday weeks, it is time to dial it down and enjoy. While the World Cup surprised with a final week of incredible performances, the FOMC and ECB did the opposite and gave investors two lumps of coal.

Read the Research Article

FPO We use cookies to improve user experience, and analyze web traffic. For those reasons, we may share your site usage with our analytics partners.

Learn More