Mr. Market

Telemus Weekly Market Review August 29th - September 2nd, 2022

A classic investment book is Benjamin Graham’s Intelligent Investor. Graham is considered to be the godfather of value investing. In this 1949 text, he concocts an analogy of a fictional character, Mr. Market. Every day, Mr. Market offers to buy or sell shares of stock at a different price. The only problem is that Mr. Market is erratic and moody. Some days he will offer you an exceptionally generous price, and on others a ridiculous offer well below what you think is reasonable. The good thing is that you can elect whether you wish to act on Mr. Market’s offer to sell your shares. Moreover, inevitably he will be back tomorrow to offer transact at a different price, which will be dependent on his mood.

Over the summer months, the equity market has at times appeared a little overly optimistic and more recently more pessimistic. In our view, the Mr. Market analogy is fitting as not a whole lot around the macroeconomic picture has changed. Inflation remains high, yet there are indications it may be at or near a peak. Until they see the ‘whites of the eyes’ on taming inflation, the Federal Reserve seems intent on tackling the problem before letting up, as they have throughout 2022. Thus, our expectations around potential future actions out of the Fed aren’t any different than what we thought was plausible back in May.

As we look ahead to the fall, we believe the overhang from macroeconomic uncertainty is likely to remain. Inflation will continue to be a front and center issue for the markets. In addition, the Federal Reserve will also be increasing its monthly pace of quantitative tightening and let $95 billion of assets to run off its nearly $9 trillion balance sheet each month. As this plays out, Mr. Market will continue to check in each day offering at times seemingly low prices, and at others generous. However, when we look beyond Mr. Market’s short-term mindset, we see a more attractive risk profile for long-term investors. Multiples on stocks have now returned to historic averages. Bonds are yielding 4.0%¹ , back to a level that investors haven’t enjoyed since 2009. In such an economic and market climate, we don’t believe it’s necessary to react to the euphoria and gloom of Mr. Market, but rather encompass a mindset that looks at the potential for long-term opportunities ahead.

¹Based on the yield-to-worst of the Bloomberg U.S. Aggregate index, as of September 2, 2022.

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