Most investors wait for perfect clarity before making a move. Markets rarely give you that.
About a month ago, our managing partner Richard Consul, CFA, made a timely point on the In the Harbor podcast: the consumer backdrop was still stronger than many headlines suggested.
He also argued that the market pullback may have been an opportunity to deploy some of the cash still sitting on investors’ balance sheets.
Since then, markets have moved toward that view. Looking into the next quarter, the thesis still holds.
Despite elevated geopolitical uncertainty and the recent spike in oil prices, the underlying fundamentals have not materially changed.
Unemployment is around 4.2%. Continuing claims remain near historically low levels. Real wages are still growing. Productivity remains strong. In other words, we are not seeing the kind of consumer weakness that typically signals a deeper economic breakdown.
The key question is whether higher oil prices become a sustained drag or remain a temporary shock.
Episode transcript (excerpt)
“As long as we don’t have oil prices that stay sustained at a high level, which fractures consumer discretionary, I think the underlying aspects of the consumer are as strong as we’ve seen – 4.2% unemployment, lowest levels on continuing claims that we’ve seen historically, real wage growth, productivity. All of these things at very high levels are typically really good barometers for the health of the consumer. As long as this war doesn’t drag on and oil prices don’t continue upwards, I think this might be a great opportunity to be deploying some of that cash.”
Richard Consul, CFA | Mitch Vermet, CFA, CAIA