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Wilson Pivots, Says Stock Rally May Continue. For Now
Mike Wilson has seen enough. For now, anyway.
US equities may manage to sustain a rally until the downside he sees for profits becomes impossible to ignore, Wilson said Monday.
Stocks put up a strong showing last week, snapping three weeks of losses despite an ongoing reevaluation of the Fed's rate-hiking trajectory. Rates are now seen peaking at 5.5%, a situation that would've seemed surreal just 12 months ago.
Nevertheless, equities are largely undaunted. February was lackluster, but hardly
So now he is a technician, swell.
Well, no. I mean, if you have the house equity call at a major bank you can’t just refuse to acknowledge (or totally ignore) what everyone else is talking about.
Well, lets look inside the 62% bear market from 1968 to 1982. You had a 26% rally from ’70 to ’72. And up 46% from ’73 to ’76. Given the qualitative similarities to that era, valuations, and legacy of mis-managed monetary policy, If you’re not prepared to actively manage that sort of volatility, stay out of the pool. This is no time to be on cruise control.
Looking at charts over the weekend I had to acknowledge technicals do look positive, so I’m not surprised Wilson has pointed this out. Even if technicals support short term positive momentum for the indices, momentum can unwind quickly with a piece of good/bad news, jobs number will test the rally’s resilience this week, but as H has indicated the bar for a hawkish surprise is high. The earnings recession can has been kicked down the road one more time but there are plenty of hurdles to test the rally in the weeks ahead, I expect fundamentals will matter again at some point before mid year.
Wilson throwing in the towel is probably a good contrarian indicator.
The language he used to support his changed position reminds me of a popular contributor on a popular investing site, whose investing advice is always the same: stocks will go up unless they go down.
Quite certain H knows who Im talking about.
Ha! I totally forgot about that guy! He was wild, bless him.
The comparison is obviously apples to oranges, though. Wilson is the number one-ranked US equities strategist among institutional investors in the US. By contrast, I never really understood who that guy you’re talking about was or what exactly he was trying to do.
It would be interesting if Wilson re-visits his earnings model for the “higher for longer” scenario. In other words, US economy maintains growth (perhaps per Goldman’s note), inflation stays high, rates go and stay higher, so company sales maintain growth with sustained margin pressure. I presume he has, or will, done this. As H says, Wilson is not some click-chasing perma-whatever pundit, he’s a serious strategist with a lot of analytical resources and a client base that demands returns over provocative or entertaining musing.
2 things missing from the current narrative (and I still don’t understand why):
1- dollar weakness = higher inflation = higher terminal rate = lower multiples
2- excessively low taxes = higher inflation = higher terminal rate = let them eat cake
Perhaps the thinking (if there is any thinking) is that higher inflation means higher nominal growth and that higher growth offsets higher discount rate.
That is the best argument for why technicals matter; the fact that they influence the decision making of a lot of market players. It is a bit of a circular argument but really, they matter because they matter. Personally, though I pay attention to everything, I make so much more money and take fewer risks since I started taking technicals seriously a decade ago.