U.S. stock and bond markets are finally in the process of catching up with our opinion. We have always believed that these last two years have represented a fake bull market built on sand, not concrete.
And to be honest, we’re also adamant that the fear of inflation is soon to be overcome – the bull market is in the midst of extrapolation and hyperventilation by economists, strategists, pundits, and the media type, whose tips don’t seem to see the past. The impact on their nose from the supercharged dollar is huge in terms of the impact on the cost of imported goods. Inventories have shifted from deficits to excess and need to be remedied with price discounts.
The growth of money supply has literally broken down and there is a vibration in the flow of money. Within a year, the fiscal policy has gone radically
The stimulus of restraint that will blush the rest of the tea party. The circular side of the commodity bull market is in the rear-view mirror. And since Federal Reserve Chairman J. Powell has mayopically focused on “job openings”, a very soft data point, he’s missing out on the rise of layoffs and retreats in company recruitment plans. Inflation will melt next year, and very few (if any) are prepared for it.
I feel like I’m reviving the summer of 2008. The stock market is following a familiar pattern of a bearish market. The first step is Fed-induced P / E multiple contraction. Typically, the first 20% drawdown is how liquidity drains shrink the P / E multiple – typically four percentage points in this first installment of the bear market.
This time, compression has been five multiple points since the early peak of 2022. How perfect. Every recession in the economy necessarily involves a contraction in earnings, which has not yet happened. I said, it’s all about multiple. So far, that. A plain-vanilla GDP recession, no matter how mild or severe, reduces corporate profits by more than 20% from the maximum.
Drop that next shoe. This means that once analysts begin to grasp reality and reduce their numbers, investors who are now dipping their toes into the market because they believe valuations have improved “will face enough of their own realities, no – where consensus is theirs. Based on what future EPS will be forced to assume – the equity market is not nearly as “cheap” as it seems at the moment.
No one can ring the bell at the peak or the dock. But there are well-established patterns below the basics. For one, the recessionary scene needs to be mainstreamed. Analysts need to supplement their downward earnings estimates. There is no market deficit until the Fed tightens, and in contrast to the liquidity-led drawdown in a recession-tolerant market (towards the end of 2018), the real policy is to simplify the market downturn. This is a good time. Away
Read: When you expect the Fed’s rate hike to hit housing, stocks and other ‘certain’ things, what can be expected is that the stock market also needs help from the Treasury market to support a “relative” valuation. In the past, a bear market in equities required an average drop of 135 basis-points (1.35 percentage points) in 10-year Treasury TMUBMUSD10Y,
Yield Before anyone turns bullish on stocks, history shows that we need a big bond rally first. Memo for Asset Mix Teams: This means a slice below 2%.
Also, keep in mind that dividend yields on the S&P 500 SPX,
This is a 1.5% – beer markets usually do not end until dividend yields are combined with bond yields. Mathematically this means less than 3,300 for the S&P 500. So the answer is no, we are not there yet.
David Rosenberg is president and founder of the research firm Rosenberg Research. Sign up for the free, one-month trial on the Rosenberg Research website.
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