Bear Market Won’t End Until Recession Question Answered: Wilson

Bear Market Won’t End Until Recession Question Answered: Wilson

The bear market in equities won't be over "until recession arrives or the risk of one is extinguished." That's according to Morgan Stanley's Mike Wilson who, on Tuesday, said that although stocks have de-rated and are "more fairly priced" for a deceleration in corporate profit growth, equities aren't priced for a recession. Opinions vary on this point, mostly because, as noted here last week, much depends on what you mean by "priced." There are any number of ways you could go about claiming st
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6 thoughts on “Bear Market Won’t End Until Recession Question Answered: Wilson

  1. Whatever the policy response it would be wise to ignore Larry Summers. His latest bon mot is to tout the idea that unemployment needs to rise a ton and stay elevated- put a fork in US democracy if we listen to that advice. His credo will destroy this country. Whatever happened to making adjustments without completely sinking the boat. I remember the Volker years. We all paid a heavy price for them- gutted manufacturing base, rampant unemployment. Those that advocate that kind of policy forget the cost. Inflation has not been high for that long. Why not give policymakers the chance to adjust inctrementally before putting everyone through a meat grinder?

    1. RIA – great points all around. Somehow, many people seem to believe that choking interest rates will have only a quick, tolerable economic impact. In contrast to the historical record you highlighted.

      As you said, what’s the hurry?

  2. @RIA, agree. Fed should do what it can on inflation, but not go so far as to crucify employment, especially since its tools are likely better at the latter than the former. Fed cares not what we think. So salient question is what Fed will do? Fortunately, I don’t get the sense FOMC would adopt Summers’ patient-killing prescription.

  3. I get a sense that this is more about what the FED did not do that needs to be considered first.
    They did not see inflation coming.
    When they saw inflation coming, they called it transitory and did nothing.
    When they saw the labor shortages, unfilled jobs and supply chain issues they ignored them, said everything will fix itself and did nothing.
    Finally, in June 202 they did something with an unheard of rise in interest rates (0.75%) that no one in early June was projecting (30% probability).

    Prices go up when there is limited supply of a product and the product is in demand!

    FED policy can not control supply or impact supply constraints or labor shortages. So demand must be lowered for inflation to subside!

    Maybe for this reason, the FED has little wiggle after months of inaction and is sending a message – the 75 basis points has maybe become the new 50 until they see evidence of it working, directly or indirectly?

    1. Hindsight Capital Management makes calling policy easy. I thought the Fed should have stopped Q/E sooner, like last summer, mainly to give themselves some optionality. Keep in mind, Russia’s invasion of Ukraine, which lit commodities on fire only happened in late February though. If the Fed had known about that event I am sure they would have reacted sooner. And look at what spreads are doing…. mortgages are up a solid 300 bps, credit card rates up quite a bit too. Rates that real people and corporations pay are up a lot more than the Fed’s move from 0 to 150-175. I refuse to second guess the FOMC- sorry hindsight is 20/20, but nobody knows the future. I give the FOMC a lot of credit for changing their approach- in fairly rapid order. And I think they are tightening too fast. But I give them credit for trying…..

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