One Bank’s Stark Warning: ‘It Is Not Looking Pretty’

One Bank’s Stark Warning: ‘It Is Not Looking Pretty’

Given the overtly inauspicious character of recent market developments, a cautious cadence is warranted. I attempted to communicate as much in a series of articles published here a little over a week ago. The US economy is dangerously out of balance, the Fed is poised to embark on an aggressive tightening cycle and US equities are exceptionally vulnerable due to a ton of embedded duration risk and elevated multiples. That's the gist of the three linked pieces (below). Read more: Bears And Se
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One thought on “One Bank’s Stark Warning: ‘It Is Not Looking Pretty’

  1. The list of negatives is long and well-known by now, even if some players remain in denial (BTD retail, for ex). Withdrawal of fiscal stimulus, monetary tightening, supply chain not rapidly healing, high valuations (still), political gridlock, energy costs, and while BAML FMS respondents seem to care little, Covid continues to suppress and distory while churning out a multitude of variants from which the next immune-evading and potentially not-less virulent one may emerge.

    The main positive that is supposed to keep markets pointed up and to the right, or at least flat long enough to “grow into valuations”, is corporate earnings and guidance. They are supposed to be strong, so that an “earnings-led” market can withstand all the negatives.

    Which makes 4Q21 earning season a do-or-die affair. The big banks reported meh, but with the Fed on their side (raising rates) and the political balance shifting it their favor (Warren potentially in the minority party), the damage wasn’t too bad. What other groups have the Fed and political winds on their side? Hard to think of many. So meh reports will be treated harshly and outright whiffs will be NFLX’d, meaning $240 billion cap names gapping down like smallcaps.

    MSFT reports on the 25th, AAPL on the 27th. That’s the two biggest FAANGs and 12% of SP50. Next week will be critical. Yes, various indicators suggest the market is oversold (others not so much) but is big money really going to bet heavily on a rally until it sees those two?

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