Happy Saturday my friends. I'm Phil Rosen. Today I'm eager to share this week's conversation with a top investment strategist who's anticipating trouble ahead for the economy.
But first I have a question for you — who should I interview next? Let me know on Twitter @philrosenn, or email me prosen@insider.com.
Now, without further ado…
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Liz Young is the head of investment strategy at SoFi. This conversation has been lightly edited for length and clarity.
Phil Rosen: Where are markets now given the Fed's nine consecutive rate hikes, and now that we're several weeks past the collapse of Silicon Valley Bank?
Liz Young: The gist of how I'm feeling is that I cannot imagine a world in which we raise the Fed funds rate 475 basis points and then trot off merrily into a new bull market.
And as far as the bank crisis, I think we're in a situation right now where we plugged the hole that was discovered sufficiently for the near-term, in the sense that depositors were covered.
But I also am hard pressed to imagine a world where bank failures and corporate liquidity issues are good news.
Should a recession strike, how might that impact the stock market?
LY: So in 2022, from peak to trough, we were down on the S&P 500 about 25%, and that put us squarely in bear territory, but it did not put us quite into recession territory.
If a recession is confirmed, the market typically corrects more than 30%.
In the financial crisis, it was down 58% from peak to trough. I don't think that we need to get there. I do not think that this is a repeat of the financial crisis. However, I would expect that it would get beyond 25%.
You pointed out that markets are expecting the Fed to cut rates this year, but the Fed is saying no rate cuts are coming. What's the disconnect here?
LY: The Fed's not going to come out and say, "we think there's probably going to be a recession so we're going to have to cut rates."
They sort of have to stay on this narrative that is of the belief they can still orchestrate a soft landing. So they'll say they will keep rates high for the rest of 2023 as inflation comes down. It's to keep their projections consistent.
As far as the market goes, two cuts look priced in. I think we do get a cut because I expect there to be a notable downturn in economic data, and more things that see stress in the system.
Get Young's full insights here.
And here are the top stories from markets this week:
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1. Morgan Stanley recommended this batch of stocks to prepare for more market volatility. Investors should brace for an earnings recession and continued financial uncertainty, chief investment officer Mike Wilson explained. See the list of 32 top names.
2. The US housing market is crashing and soaring at the same time. Depending on where you live, your home could be appreciating in value or moving in the opposite direction. The trends have been driven by mortgage rates, tight supply, and broader economic headwinds.
3. Bond markets are flashing a recession signal that suggest the Fed could step in quickly to slash interest rates. Short-term Treasuries have rallied, which historically has led to a downturn that the Fed has responded to with a quick rate cut. As DataTrek's Nicholas Colas put it, the data "can only mean a recession is close at hand."
4. Americans are flocking to money-market funds to protect their money. Bank failures have sparked concern about the safety of deposits, but money-market funds also look attractive thanks to rising yields. According to Bankrate data, here are eight names offering high yields.
5. Influencers make being a landlord with lots of rental properties seem easy. But this real-estate investor with 482 units warned that newbies shouldn't try and scale up too quickly. He explained why the strategies that may have worked in the past no longer guarantee success.
6. Michael Saylor's MicroStrategy just snapped up 6,455 bitcoins in the midst of the token's steep rally. Saylor, a long-time bitcoin bull, has guided his software company toward $3.88 billion in crypto holdings. A SEC filing showed that the firm's most recent purchases were made over the last five weeks — and now it holds 138,955 bitcoins.
7. Property professionals warned that real estate fraud has spiked in the US as the housing market remains tight. Both buyers and sellers are feeling the pressure and desperation of limited supply and difficult economic conditions. Some experts predict the situation could get worse.
8. A crisis in the financial sector has rattled investors but markets look poised to avoid a crash. That's according to JPMorgan analysts, who this week shared four charts that put the banking crisis into perspective. Get the full details.
9. The world's largest wealth manager is warning investors to avoid stocks for the rest of the year. UBS downgraded equities and cautioned investors not to miss out on the opportunity waiting in the bond market right now. Here's the firm's advice across every asset class.
10. The US oil and gas sector has sputtered to start the year. Production is slowing down and crude prices are falling after months of volatility. Top energy executives said the sector's growth is slowing down and the health of the global economy poses risks.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.