Stocks rallied last week as progress was reported in negotiations between Russia and Ukraine.
www.ft.com/content/94aa3d14-c21d-4bce-b515-656b7dfb8d87

Moody’s analysts recently lowered their 2022 global GDP growth estimate from 4.3% to 3.6%, due to war-related higher commodity prices, financial and business disruption, and lower sentiment.
www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1321920

Some analysts believe there is a 35-40% chance of a recession over the next 12 months.
seekingalpha.com/news/3815085-recession-risks-rise-for-us-economy

Stocks have been relatively resilient this year despite the deteriorating economic backdrop. This may be because:

1. There is no bubble in the stock market.
seekingalpha.com/article/4488616-markets-are-expensive-not-in-bubble

2. With interest rates still low, there are few alternatives to stocks.

3. Stocks have historically produced positive real returns even in high-inflation years (see the Article of the week below).

4. Sentiment became quite negative earlier this month, www.yardeni.com/pub/peacockbullbear.pdf
leaving the markets vulnerable to a squeeze higher on any good news about the war.

Though the war continues to dominate headlines, if there is any resolution to the conflict, the markets will probably return to focus on inflation.

Inflation is still running hot in the US. To combat it, the Federal Reserve is planning to increase interest rates several times this year. Rates are expected to increase to 1.9% in 2022 and 2.8% in 2023.
www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf

Increasing rates have historically led to mediocre returns in the stock market (see Article of the week), so we expect 2022 will be a tepid year for stocks even if the war ends.

We are positioning for a weak, but perhaps not recessionary, economy by investing in undervalued companies in sectors that have historically performed well in stagflationary environments (Healthcare, Real Estate) or whose prices already discount an economic slowdown (certain Industrials). We are avoiding risky leveraged companies (Financials) for the time being, until an end to the war is confirmed.

𝟮𝟬𝟮𝟮 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗬𝗧𝗗
@triangulacapital +0.5%
$SWDA.L -6.5%

𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗰𝗵𝗮𝗻𝗴𝗲𝘀
$OCI.NV (OCI NV) was replaced by $AIR.PA (AIRBUS GROUP) to adjust the risk level of the portfolio slightly higher.

𝗔𝗿𝘁𝗶𝗰𝗹𝗲 𝗼𝗳 𝘁𝗵𝗲 𝘄𝗲𝗲𝗸
“Credit Suisse Global Investment Returns Yearbook 2022”
www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-global-investment-returns-yearbook-2022-202202.html

– The yearbook shows why it’s worth investing in stocks. “Over the last 122 years, global equities have provided an annualized real USD return of 5.3% versus 2.0% for bonds and 0.7% for bills.” Over 100 years, a 5.3% annual return turns $10,000 into $1,750,000.
– Stock returns were positive in most inflation regimes, though low inflation was best. Only if inflation was extremely high (>18% p.a.) did stock returns turn negative.
– Stocks returned +9-10% p.a. when interest rates were being cut, but only +1-3% when interest rates were being increased. Because interest rates are currently being increased, investors need to set their expectations lower than in the recent past.