Fate Of Bear Market Rally Hangs On Two Things
When Mike Wilson turns tactically (and relatively) constructive on equities, you might be inclined to think all's temporarily right in the world.
I'm just joking. Despite his reputation as a bear, Wilson has in fact turned overtly bullish at many key inflection points for stocks over the years including, most recently, just prior to the October rally which is still intact.
That said, Wilson certainly isn't shy about expressing skepticism when equities become disconnected from the fundamentals,
This looks like credit is going to be the swing factor. So far higher rates have not lead to widening credit spreads (except in a few markets like commercial office real estate lending, very low rated junk corporate and sovereign bonds and residential mortgages). What often happens in situations like this is that spreads stay tighter for longer than anyone believes is possible. Then you get an event, and spreads widen dramatically. Once that happens, you have the sufficient condition for a recession and market correction (necessary condition -inverted yield curve). Hard to time. I thought it would be this year. Now I have thrown up my hands. It is coming but who knows when? And you can toss the soft landing or no landing scenario out the window. Things rarely work out that way (maybe 10-20% chance of that at best).