FNArena’s Weekly Insights – June 06 2022

In this week’s Weekly Insights:

-Recession? The Other Type
-Here Endeth The Housing Bull Market
-Dividends For Mum?
-Conviction Calls
-FNArena Talks
-Behind The Curve On Climate

By Rudi Filapek-Vandyck, Editor FNArena

Recession? The Other Type

Market strategists at Morgan Stanley remain of the view that equities in the US will end up at lower levels before investors can comfortably assume a bottom has been established in this cycle of unwinding and de-rating after years of central bank largesse and exceptionally low bond yields.

And while lots of debates are being held about whether economies in the US, China and elsewhere might be heading towards an economic recession, Morgan Stanley makes the point there is that other type of recession -in corporate earnings- that might prove more important for equity markets in the weeks/months ahead.

…we need to distinguish a potential profits recession from an economic one. Regarding the former, odds are growing that sequential profit growth has peaked and will turn negative at least for a few quarters, as inventory levels normalize and costs stabilize from all-time high margins“.

Viewed from an Australian point of view, I certainly sympathise with that approach. Unless we are now underestimating the true pain among Australian households, and what is yet to come through on the back of RBA tightening, the Australian economy should not face an economic recession this year or next.

But corporate earnings are what ultimately decides which stocks are cheap and which ones are still expensive, and that cycle is definitely turning in 2022. See also ‘more to read’ further below.

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