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Two pieces of good news for investors and three steps to take in view of rising CPI from UBS

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While the stock didn’t quite roll after that ugly consumer price index print, futures indicate they could take another blow on Thursday.

That’s thanks to a miss from JPMorgan, which is helping kick off earnings season. (read more below).

How high will inflation reach and to what lengths will the Federal Reserve go to combat it? Those are questions without answers right now, though Wall Street is busy hitting them.

Nomura is putting its money on a 100 basis-point increase at the next Fed meeting. “Inflation and a single-mandate Fed is set to reduce it,” said a team led by Aichi Amemiya.

Meanwhile, at Jefferies, there are hopes that the prospect of an annual inflation peak has passed. He noted that the bulk of the increase in inflation was due to housing “which should fade as seasonal factors,” and energy prices that have already begun to ease.

Still, a question for investors is now what to do with that grim, though backward-looking, inflationary numbers in sharp cages. Our call of the day Mark Heffel, chief investment officer at Global Wealth Management, and his team at UBS offer a three-pronged playbook.

On the bright side, Heffele said the market is “starting to believe that the Fed has the resolve to top inflation even if it hits a multi-decade high.” Market pricing, he said, now points to an earlier end of the hiking cycle than CPI data.

And he pointed to a “clear sign” that the market is growing more confident in the Fed’s ability to keep a lid on inflation – US 10-year break-even inflation rates that fell from a peak of 3.11% on April 21 to 2.32%. are gone. , “All else being equal, the risk of our ‘inflation’ scenario in which markets fear the Fed will lose control of inflation,” the UBS team said.

Overall, UBS thinks inflation is falling in the latter half of 2022, thanks to improving supply-chain issues that will lead to a better supply-and-demand balance. He said a squeezed household budget would mean less demand for discretionary goods and services.

But given the still fairly uncertain background, investors will need a portfolio that can contend with a variety of scenarios, the UBS team said:

  1. invest in value: Expect inflation to hit central bank targets this year, and based on post-1975 analysis, UBS finds that when inflation is above 3%, value sectors outperform growth stocks. perform. In a soft-landing scenario, this sees price performance as well as increased confidence that the company’s earnings will remain well-resilient to cyclical sectors such as financials and energy, with the UK market also one to consider. .
  2. The more defensive and quality, the volatility work. If a “recession” is coming, leading to lower corporate profit expectations and further decline in stocks, investors should opt for quality-income stocks, healthcare, “flexible credit” and the Swiss franc. “Capital-protected strategies can allow investors to use volatility to work in their favor and mitigate potential downside risks,” Heffel and team said.
  3. Liquidity strategy and hedge funds. To manage the risks of forced sales, earn yields, and prepare for potential future opportunities, Heffel suggests setting up a “liquidity portfolio” to meet three- to five-year cash flow needs. This would include a mix of cash, cash options and short-term bonds. “Investors should also ensure adequate allocation to hedge funds that have the potential to deliver performance even when both bonds and equities are falling.”

Heffel’s final thoughts: “Markets are likely to remain volatile in the coming months and trade based on hopes and fears about economic growth and inflation. Unless there is a steady decline in both the headline and core inflation readings, then A more durable correction in market sentiment is unlikely till date, to reassure investors that the risk of price hikes is passing.

buzz

JPMorgan JPM, -0.94% shares are falling due to net income declines that missed forecasts. Morgan Stanley MS, -1.26% is also due to report, the first of more than 70 S&P 500 companies to report results before the end of July. Elsewhere, US-listed shares of Ericsson Erics are falling +2.04% due to earnings gloom. and Taiwan Semiconductor TSM, higher on the +2.77% forecast-beating results.

Tesla TSLA, +1.70% is losing its top artificial-intelligence man, Lady Karpathy. And rivaling Elon Musk’s electric-vehicle company Hyundai Motor 005380, -0.54% has launched its first electric sedan.

Netflix NFLX, +1.21% selects Microsoft MSFT, -0.37% as technical and sales partner for its ad-supported subscription service.

Treasury Secretary Janet Yellen says the Russian oil price cap proposal has not yet been agreed at any stage. He dubbed inflation “unacceptably high” and called on Congress to address drug prices.

Further figures include final June producer prices and weekly jobless claims.

Singapore and the Philippines have joined other central banks with surprise hikes, the latter increasing rates by 75 basis-points via Facebook Live video on Thursday.

As the euro EUR/USD is hanging around the -0.48% dollar parity, the European Union has raised its inflation forecast from 6.1% to 7.6% in 2022 and lowered its growth forecast.

Market

Stock futures ES00, -1.24% YM00, -1.33% comp, TMUBMUSD10Y with -0.15% bond yield, 2.963% TMUBMUSD02Y, up 3.194%, with dollar, DXY, +0.70%, euro putting EURUSD, moving south are. -0.48% on another parity clock. For the first time since 1998, the Japanese yen has risen above 139 against the USDJPY, +1.20% buck. Elsewhere, Oil CL.1, is down -2.90% and Gold GC00, -1.49% further down and Bitcoin BTCUSD, +0.29% at $19,948.

Reading: Troubled crypto lender Celsius files for Ch. 11 bankruptcy

ticker

These were the most searched tickers on MarketWatch as of 6am:

anchor security name

GME, +3.03%

GameStop

TSLA, +1.70%

Tesla

AMC, -2.95%

AMC Entertainment

NIO, +1.05%

NIO

TSM, +2.77%

Taiwan Semiconductor Manufacturing

AAPL, -0.25%

Apple

NVX, +0.27%

novavax

Zella, +3.13%

excel

AMZN, +1.08%

heroine

NVDA, +0.54%

NVIDIA

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