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Only A Ukraine Cease Fire Can Stop Stock Bear Market
If you're betting on anything more than a short-lived bounce in US equities, an end to the war in Ukraine is your best (and perhaps only) hope.
"Outside of a peace agreement, it's difficult to construct a case for more than a bear market rally," Morgan Stanley's Mike Wilson said, in a Tuesday note.
Wilson has, of course, been skeptical of stocks for months. Earlier this year, he flagged a buildup in inventories as a potential headwind for corporate profits to the extent discounting might event
H-Man, I agree the cease fire will be a boon (as well as the demise of Putin) but it appears they are simply digging in which will be a protracted battle in Ukraine. I can’t argue with the logic of Wilson, this is ultimately going to be a landslide dragging everything down in it’s path.
I can’t see sanctions on Russia stopping while Putin remains in power (which seems likely longer than Biden will be in office).
The push for non-Russian energy means higher prices for US producers along with a great case for renewables and incentive for Europe to truly break its addiction.
The major change for improving global stability would be a breakthrough in shipping all the foods and goods Ukraine have – otherwise sadly the world’s (economically) fine with some random corner being in a forever war (Iraq, Afghanistan).
Hopefully someone creative figures a way to transport westward or more likely (Turkey who get a commission?) negotiates a deal for Black Sea shipping.
(Alternate universe: enough Russian warships are sunk by drones so that they leave – much like the tanks that were destroyed on the way to and running away from Kiev).
Here is what troubles me. Yes, the war and zero-Covid will eventually end, supply of energy and food and China-made stuff will return to something like “normal”, inflation will ease off, Fed will back off. Market will probably front run that and rally big. We all hope to catch that move, whenever it is. Late 2022 maybe?
When the dust settles, will there have been a structural change in business models such that SP500 margins should stay as far above the pre-pandemic level as they are now? Have SP500 companies really moved to a permanently higher profitability level? Or have they just been over earning for the past two years?
I mentioned, in comments to a prior post, what can happen to 2023 estimates if margins simply revert to “normal”, e.g. 2019 levels. Down revisions, sizeable.
Maybe it’s too early to worry about that. It’s not 2023 yet.
But estimates can get cut fast – ask WMT TGT shareholders.
And, worse case, if inflation/tightening stick around long enough to overlap the “normalization” of margins, that could really be, well, interesting.