Did You Enjoy the July Rally? Too Bad It Was Temporary

After a nasty first half of 2022, July provided a refreshing summer breeze—and a 9% jump in the S&P 500. Don’t get used to it: This is a respite, not the start of a bull market. That’s the advice from John Lynch, CIO for Comerica Wealth Management.

The market’s gains—it’s up 12% from the June low point—seem like a short-lived phenomenon, Lynch wrote in a research report. In fact, “history has shown that countertrend moves are common during periods of market distress,” he explained.

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In the average bear market rally, the index rises around 15% over two months, according to Lynch. Let’s not forget that the S&P 500, while improved from its low point of more than a 20% loss from the early-January peak, is still down considerably this year—negative 14.1%.

Lynch noted that inflation remains “stubbornly high” and “companies have yet to fully experience the drag to margins from higher input costs.”

It could be that the U.S. already is in a recession, he mused, referring to the two recent consecutive quarters of economic shrinkage—the rule-of-thumb definition for a recession, even though one has yet to be called by the National Bureau of Economic Research, the official arbiter of downturns.

If a recession is now under way, he reasoned, the Federal Reserve’s tightening policy stands to produce a second one in the near future. “This is because monetary policy typically acts with a lag of approximately 12-18 months,” he said. The economy has not yet felt the impact of the rate hikes in its past four meetings, “suggesting the potential for a double-dip recession sometime next year,” Lynch warned.

Another recession signal, Lynch pointed out, is an inverted yield curve. He wrote that “the U.S. Treasury yield curve is enduring its second, and more pronounced, inversion since April,” with the 10-year Treasury (2.6%) yielding less than the two-year (2.9%).

On the bright side, the bear market rally that Lynch sees could go on for a while. Namely, he argued, the percentage of the S&P 500 trading at 20-day highs and also of those trading above their 50-day moving average indicates improved momentum.

Tags: bear market rally, Comerica, double-dip recession, Federal Reserve, Inflation, Inverted Yield Curve, John Lynch, recession, S&P 500

The $280 billion New York Common Retirement Fund has allocated more than $4 billion in investments in June, over $3 billion of which is earmarked for alternative investments, according to the fund’s monthly transaction report. The allotment includes $2.2 billion in real estate investments, and over $1 billion in private equity funds.

Within its real estate portfolio, the pension fund committed $500 million each to the JP Morgan Strategic Property Fund, the Blackstone Real Estate Partners X fund, the Principal U.S. Property Separate Account fund and the PRISA fund from Prudential’s PGIM real estate.

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The JP Morgan fund, which is managed by JP Morgan Investment Management, is an open-ended commingled fund that invests mainly in core real estate assets in the U.S. The Blackstone fund is the latest in the private equity firm’s series of global flagship real estate funds, which intends to build a diversified portfolio of real estate and assets related to it worldwide.

The Principal fund, managed by Principal Financial Group’s Principal Real Estate Investors, is an open-ended diversified fund that focuses on core stabilized assets within the main real estate sectors in the U.S. And the PRISA fund, which is sponsored by the global investment management division of Prudential, is a perpetual life, open-ended, commingled fund that invests in core real estate assets in the U.S.

The NYCRF also earmarked $200 million within its real estate portfolio to the Fairfield U.S. Multifamily Core Plus Fund II, which is a closed-end, core-plus-style real estate fund that aims to invest in multifamily assets located in suburban U.S. markets.

The pension fund also allocated a little over $1 billion to private equity investments, led by a $400 million commitment to the Hamilton Lane NY Israel Fund II, which will target Israel-focused funds and co-investments in Israel’s technology and health care/life sciences sectors.

The NYCRF committed €300 million ($308 million) and €225 million to the Knickerbocker Co-Investment Partners fund from CVC Capital Partners and Bridgepoint Capital’s Bridgepoint Europe VII fund respectively. The Knickerbocker fund is looking to invest capital in select, high-conviction opportunities alongside CVC’s European, Americas and Asian funds. And the Bridgepoint fund will invest in the business services, media and sports rights, consumer, financial services, health care and advanced industrials sectors, mainly in Western Europe.

And for the remaining private equity investments for the month, €50 million and $50 million was set aside for the Marble Arch Albany Co-Investment fund from Bridgepoint Capital and Hamilton Lane’s New York Credit SBIC Fund II respectively. The Bridgepoint fund will invest in “high conviction opportunities” alongside its Bridgepoint Europe VII fund, and the Hamilton Lane fund seeks debt investments in New York state’s lower middle-markets.

The pension fund also committed $500 million within its public equity portfolio to the Pictet Global Environmental Opportunities fund, which aims to invest in global equity opportunities, and $350 million within its credit portfolio to two funds managed by Sixth Street Partners.

Of the $350 million, $200 million is going to the Sixth Street Opportunities Partners V fund, which focuses on thematic, control-oriented, actively managed investments with downside protection in growth, stressed and distressed situations. The fund’s investments include senior secured term loans, preferred equity, convertible notes and warrants. And the remaining $150 million is earmarked for the Sixth Street Growth Partners II fund, which will focus on “bespoke capital solutions” to performing, late-stage growth companies. Investments will include senior secured term loans, preferred equity and convertible notes.