Aaron Anderson of Fisher Investments Provides an Update on Investor Sentiment

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The screen was split in half at the start, a man appears on the left half of the screen wearing a Navy suit setting in a news studio, on the right side a man appears on the other half of the screen wearing a navy suit as well, sitting in his office.

The man in the studio begins to speak.

Dan: Aaron Anderson.

He's senior vice president of

research at Fisher Investments.

He joins us live from San Francisco.

And Aaron, let's begin on the unrest in China.

As you've heard, investors seem pretty happy to buy into the reopening trades.

Probably going to get more clarity on what the future of Zero COVID is going to look like over the coming hours.

But what's your view on the challenge being presented for Beijing and what this is ultimately

going to mean for markets moving forward?

The screen switches to Aaron Anderson in his office speaking.

Aaron: Nice to speak with you, Dan.

I think what these protests represent is the fact that there has just been a lot of difficulty.

It's been very hard on people in China with the lockdowns, it's been hard on the economy.

You're seeing the impacts there.

But there is a silver lining.

I think that these could very well be

the spark that maybe begins the reopening process.

As you mentioned, equity markets in Asia are seeming to buy into that a little bit today.

On the screen, a scene is being played of heavy police patrols in Beijing, China. In anticipation for riots amid civil unrest.

Aaron: And I also think it shows that coming out of the party Congress there were big concerns that maybe Xi Jinping did not have the proper checks and balances in place.

And I think this shows you that the

population itself can provide some checks and balances.

So, these types of protests, as you

well know, are very unusual in China.

And the fact that citizens are willing to make their voices heard, I think shows that there are still some political considerations that still have to be top of mind for Xi Jingping and his administration.

The screen switches back to Dan in the News Studio speaking.

Dan: Indeed, a very fine line for him to be walking.

Aaron, do you want to buy into this momentum or stay on the side-lines for now until we get more clarity on

exactly what the policy is going to look like?

The screen switches to Aaron Anderson in his office speaking.

Aaron: Now, I think, is the time to be looking ahead, not just the next month or a few months to the next year or so.

And we do see a much brighter future for equities over that type of a time frame.

I think equity markets have dealt with quite a bit here in 2022.

On the screen a data-grid appears, it shows China markets, to be exact its showing the stats of big companies.

Aaron: COVID lockdowns have been just one of many bricks in the ‘wall of worry’ that have weighed on markets so far this year but are also exactly what equities tend to climb as we move into a new bull market.

I think gradually we'll start to move away from some of the fears about geopolitics, about spiking resource prices, which have already largely subsided, especially in the energy space.

We still are dealing with some of these COVID lockdowns, we're still dealing with high inflation rates and

worries about central bankers, but I think eventually investors will start to move past that as well.

And so not to say there couldn't be some more volatility ahead, as you saw yesterday and today.

Still, these are market moving events.

But I think focusing on a slightly longer time frame, I think we've got a lot of worry baked into equity markets already.

I think there's significant room for upside surprise with how well the global economy handles this period and weathers it.

On the screen a chart appears, this chart is showing the U.S Fair Value.

Aaron: And ultimately, I think that upside surprise can be a positive force driving equity markets higher in the year ahead.

Screen is back in split-mod again with both Dan and Aaron on each side.

Dan: Just to add to that, I think even if we did see some kind of upside surprise, so much of the market narrative, so much of the momentum ultimately comes back to what we see the Fed doing next month and into 2023.

Investors also counting down to the

jobs report being released on Friday.

Is it going to confirm this hawkish tilt that we've heard from the Fed over the last few days, or are we going to see this long-time coming pivot

that everyone seems to be talking about?

The screen switches to Aaron Anderson for a few seconds then a table appears showing the U.S Fair Value, then it switches to a U.S Treasury yields table seconds later.

Aaron: I think it's a great point, Dan.

I think of all the worries that are out

there, some of which I cited, certainly inflation and Fed policy is top of mind for most investors

and seems to have the most market moving impact.

And I think it's a little bit too soon

for the Fed to change its tune entirely.

I mean, yes, we did get some positive inflation data.

It showed some deceleration.

It came in below expectations, which was the first data to do so in quite some time.

But I don't think we've seen enough

for a complete pivot from the Fed.

In fact, I wouldn't expect that anytime soon.

But I also don't think that we need a complete pivot.

I don't think we need a cutting of

interest rates or reversal of these tightening policies to give the market some comfort.

I just think we need some signs that the Fed isn't going to keep hiking us into oblivion, that a big recession induced by the Fed isn't

the only way out of this inflation problem.

And if the Fed sends some signs that maybe they're willing to slow the pace of hikes, maybe

even pause for a while, I think that could be a real positive catalyst for equities from here.

We kind of take that worst case scenario of a big recession that the Fed pushes us into.

It might take that off the table,

at least for the time being.

Screen is back in split-mod again with both Dan and Aaron on each side.

Dan: Aaron, just one more thing.

What does OPEC Plus do this weekend?

Clearly, we've seen oil prices coming down to 2021 lows on the China unrest.

Does that mean that we might see

another cut to production on the cards?

The screen switches to Aaron Anderson for a few seconds then a table appears showing us stats of Oil Markets. Seconds later, the screen switches to a WTI Crude Futures data-grid, this grid is showing the stats over the past few-months, then lastly the grid switches to Brent Crude Contracts stats over the past months as well.

Aaron: Well, I wouldn't be surprised.

In fact, it's really amazing that if you look at West Texas, not quite to the same level of crude, but they've

almost done a full round trip so far this year and are back to, as you mentioned, where we were at the

beginning of 2022, which is really incredible when you consider the

types of price spikes we saw earlier this year.

I would say that oil markets are still reasonably balanced.

We think, as I mentioned, the global economy will weather this period reasonably well, and that should keep demand up at a reasonable level. And although you are starting to see some signs of new supply coming online, us.

Production picking up ever so slightly.

It's not enough to cause a real supply demand imbalance, but given the fact that we have seen a pretty significant pullback in pricing, I wouldn't be at all surprised to see OPEC have a little bit of a hawkish tone here.

Maybe at least float the idea of some future rate hikes to see if they can stabilize markets a bit.

But really, I think at the end of the

day, with a stable economy without too much production growth, oil prices should be reasonably stable from here.

Screen is back in split-mod again with both Dan and Aaron on each side.

Dan finished talking to Aaron.

Dan: Okay, we watch. We wait.

Aaron, really appreciate you staying up late for us.

Thanks again.

That's Aaron Addison from Fisher Investments.

Live in San Francisco.

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