A strategist in 1982 signs the bear market is over: Morning Brief

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Tuesday 2 August 2022

Today’s newsletter by . Is Miles Abroad, Senior Market Editor at Yahoo Finance. follow him on twitter @MylesUdland and on linkedin,

When the closing bell rang last Friday, The S&P 500 posted its best monthly profit ever From November 2020.

Clear investor enthusiasm in July can be surprising Given the economic and earnings background facing the markets.

But for Fundstrat co-founder and head of research Tom Lee, the market’s recent rally makes perfect sense. Furthermore, Lee argues, history suggests we may be at the beginning of a more powerful push towards the end of 2022.

“Biggest takeaway for me on this week’s events?” “The confidence and arguably judgment evidence ‘is down’ – the 2022 bear market is over,” Lee asked in a note published Friday.

Last week, the Fed raised interest rates other 0.75%, GDP data Shows second-straight quarter of negative GDP growth, recent housing data showed a marked slowdown Arguably the most important sector of the economy. And on seeing abroad the news came that Russia further cut gas flow to germany Europe is preparing for a potentially cold winter amid Russia’s war in Ukraine.

And yet the markets rallied.

“When the bad news doesn’t drive the markets down, it’s time for investors to assess,” Lee said.

The week began with Monday’s data from FactSet, which showed analysts cut more than usual For the third quarter estimates. In other words, analysts are more bearish than usual on corporate profits. And this total fall for earnings expectations comes amid high-profile flops of choice. meta platform ,meta) And Intel ,INTC) during the last week.

However, Fundstrat’s optimism goes far beyond the outlook that hinges on the worst news flow for investors. For the past several weeks, Fundstrat has been arguing that the market system was presented to investors in August 1982 — a moment that preceded a fierce rally in equity markets amid a pivot from the Fed.

In the summer of ’82, the US economy was in recession and then-Fed Chairman Paul Volcker had not yet indicated whether the Fed would ease its campaign to slow inflation.

Federal Reserve Board Chairman, Paul Volker, stands with hands on hips and smokes a cigar during a 1982 meeting in Washington.

Federal Reserve Board Chairman, Paul Volker, stands with hands on hips and smokes a cigar during a 1982 meeting in Washington. (Getty Images)

In October of the same year, Volker hints at Fed may undermine efforts to slow inflation. “There are forces that will push the economy to recovery,” Volker said in a speech to the New York Times. “I think the aim of the policy should be to maintain that improvement.”

For investors, “keep that recovery” closed a nearly 20-year bull market in stocks. Two months before the pivot, markets sniffed the Fed’s plans — and erased all losses from a 22-month bear market in just four months, which saw the S&P 500 drop 27%.

And this is a 40-year-old rally, so in Lee’s view, the S&P 500 could go above 4,800 and hit new record highs by the end of this year. Last week, Lee noted that an expected interest rate hike of more than 0.5% from the Fed through next spring.

“The bond market will make a serious ‘dovish pivot’ in the pricing of fed funds in 2023,” Lee said. “Is it any surprise that equity markets have gained a foothold in July?”

Source: Fundstrat

Source: Fundstrat

Furthermore, Lee sees market pricing as a fear of growth as opposed to an entirely bearish one.

As was widely discussed during the spring, the S&P 500 falls an average of 32% during a typical US recession. Peak-to-trough, the S&P 500’s decline reached 23% during the current decline from record highs. And if the downturn is avoided, the 30%+ fall that many investors have faced may never materialise.

Last week’s GDP data ignited a spirited conversation about whether the US economy is already in recession or will collapse. Two negative quarters of GDP growth meet, at the very least, the criteria for a “technical” recession. Although as we reported on Friday, Bank of America economists Outlined Why a Formal Bearish Call Not likely to close any time soon.

Monday’s data for the manufacturing sector also added evidence of a slowdown in growth, but not necessarily an outright slowdown.

Manufacturing growth in the US fell to a two-year low in July. According to the Supply Management Institute’s latest Purchasing Managers’ Index (PMI). The PMI showed the biggest drop in price growth momentum in a month on record, but still came in at 52.8 – and a reading over 50 suggests expansion in the region.

Survey Data from S&P Global similar slowdown In manufacturing growth amid a marked decline in inflationary pressures, but it is a trade-off that the Federal Reserve clarified last week that they are ready to make.

“Supply chain problems remain a major concern, but have eased putting some pressure on prices for a variety of inputs,” wrote Chris Williamson, chief business economist at S&P Global Market Intelligence. “It’s been fed through the smallest increase in the price of goods leaving the factory gate for about a year and a half, adding to the rapid cooling of the inflation rate to indicate that inflation is peaking.”

what to watch today

economic calendar

  • 10:00 AM ET: JOLTS Job OpeningsJune (11,000 million expected, 11.254 million during the prior month)

  • Ward Total Vehicle Sales (13.4 million expected, 13 million during the prior month)

revenue

after market

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