The current debt ceiling morass should add liquidity into the economy and markets in the short term. The added liquidity, along with Fed pivot enthusiasm, is clearly supporting higher asset prices currently. This is ironic as not resolving the debt ceiling in a timely manner increases market risk, and it highlights the unsustainable debt picture […]
Our latest look at valuation, earnings, and macro analysis point to stock market downside. Bearish institutional investor positioning provides room for bear market rallies.
The S&P just recorded its best month since November 2020, so it’s worth asking if stocks have bottomed. Bear market rallies are normal, and we do not believe the bottom has been reached for this cycle. If the low was reached in June, then it would be the most expensive valuation (PE) bottom. Furthermore, earnings have yet to be cut meaningfully. Recessions have almost always led to large earnings reductions and we anticipate cuts in the 2H as macro conditions only really tightened in May and June.
The earnings shoe dropped this week following notable earnings misses by Walmart and Target. This led to a significant sell-off, as the market started to question the current estimates of robust earnings growth in 2022 (+10.2%) and 2023 (+10.1%). This also means that stock valuations aren’t as attractive as forward PE estimates suggest. The Fed […]