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We are thinking of the quote by prominent hedge fund investor Leon Cooperman: “He who loses the least in a bear market, wins.”  The stock market is not in bear market territory yet. But the outlook is troublesome, and the defensive philosophy of Cooperman’s quote is appropriate at this time.

We evaluated the “pros” and the “cons” for the market outlook. On the pro side, the pandemic still lingers but is receding and it is not likely to cause major disruption again. The U.S. economic recovery is strong and employment growth is buoyant. Corporate earnings are positive.

But the list on the con side is longer. The problem of supply side bottlenecks is looking more structural than temporary. Inflation is soaring and the Federal Reserve is embarked on aggressive monetary tightening. The war in Ukraine threatens to create sustained global shortages in energy and food supplies. In the view of some analysts, the combination of an aggressive inflation-fighting Fed and all the geopolitical turmoil makes it possible for the U.S. to slip into recession sometime in 2023.

At Hudson Advisors, we are concerned about all of the “cons” listed above and about the rich price of stocks from the market run-up in 2021. That said, we think U.S. equities remain among the best and safest long-term investments. We encourage our clients to be positive on equities even though our investment approach in the period ahead is careful and defensive.

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