THIS WEEK
Invigorated by decent earnings beats and fresh evidence of a slowing economy (see the regional manufacturing indexes), stocks got off to a headstart on Monday as 99% of S&P 500 stocks advanced.
Evidence of a bottom having been put in?
Speaking of noise, over half of the S&P 500’s moves this month have been over 1%, and of those days, all but two have been moves of great than 2.4% in either direction.
Earnings so far have helped burnish the market this week with Monday and Tuesday’s decent advances. Recall, though, that these earnings are backward-looking and that the economy is still running at a decent clip, all things considered.
Bond yields are reflecting the anticipated continued Fed rate hikes. The ten year has climbed up to 4.23%, its highest level since 2007. Persistently higher yields are not conducive to appreciating stock prices.
Futures are putting the terminal Fed Funds rate (i.e., where they stop) at 5% next year (it’s between 3 and 3.25% now).
KEY TAKEAWAYS
MARKET CHARTS
This chart puts a different spin on the Bear Market Rallies chart we’ve shared in the past in that it shows the % drops that occur after the market rallies.
As you can see, the subsequent drops have exceeded or equalled the amount of the rally.
The chances of a soft landing are looking less and less likely. Goldmans’ worst case (3150) is -34% from peak.
BofA fund manager survey shows more bearishness in allocation to equities (navy line) than we saw during the Great Financial Crisis.
Note, though, that equity inflows remain positive.
At top, the Conference Board puts the probability of recession at 96%.
At bottom, Bloomberg Economics puts the probability of recession at 100%.
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The views expressed above reflect the views of EdgeTech Analytics, LLC and are for informational purposes only. These views are not intended to serve as a substitute for personalized investment advice. Past performance is no guarantee of future results and no investment strategy or methodology can guarantee profits or protect against losses.