I’m hesitant to quote or otherwise amplify familiar bearish prognostications predicated on a set of micro and macro fundamental factors which’ve been routinely usurped and otherwise subjugated to flows, sentiment and multiple expansion in 2023.

I go to great lengths to be generous when it comes to analysis that’s well-meaning, plausible and trenchant, but I’d be totally remiss (and derelict in my editorial responsibilities) if I didn’t highlight instances where such analysis misses the mark, in my opinion.

On Friday, during a session which ultimately found stocks closing meaningfully higher, Morgan Stanley’s Mike Wilson described the prior day’s selloff as “another negative technical signal that the rally is exhausted.” “Now we’re going to need a new story to get people excited,” he said, referencing stocks’ failure to launch on Thursday following another impressive set of results from Nvidia.

While it’s usually impossible to say with anything approaching certainty what drove a given session’s price action, and while fully acknowledging that Wilson’s characterization (i.e., a “negative technical signal that the rally is exhausted”) leaves considerable room for interpretation, Thursday’s post-Nvidia selloff was probably attributable, at least in part, to some $20 billion in vol control de-leveraging, ironically catalyzed by the mathematical read-through of the pre-Nvidia rally. You can find the numbers here+.

Wilson might turn his nose up at that or, more likely, suggest it scarcely matters because one way or another, the “exhausted” characterization is probably a semblance of accurate given the scope of stocks’ YTD rally and no clear indication as to what the next upside catalyst might be. I’d counter that it does matter: Stocks are in thrall to mechanical flows, market depth tends to diminish in August and as such, drawing conclusions about how equities feel (e.g., “exhausted”) based on one session is a fool’s errand.

If stocks were that worn out and drained, they would’ve presumably dropped on Friday. Jerome Powell’s message in Jackson Hole was bland, but it was open to a hawkish interpretation — just ask all the journalists who said as much before changing their story after stocks turned around.

Wilson’s comments came during a chat with Bloomberg Radio. The linked article (mentioned above) documenting that chat also mentioned BofA’s Michael Hartnett. Like Wilson, he offered more of the same in his latest. “The best correlation over the past 15 years is central bank liquidity and tech stocks,” he said.

The figure above is familiar enough to be a full-on cliché. That’s not to suggest it isn’t poignant (it is) or that it doesn’t have a lot of explanatory power (it does). It’s just to say that when a correlation breaks down to the extent this one has in 2023, it’s fair to ask whether it’s still viable and, more to the point, whether it even matters. The Nasdaq was up 40% this year at the highs. What does it mean to be “right” as a bear in that situation?

Hartnett went on. “Central bank balance sheets are down $3 trillion yet the Nasdaq wants new highs,” he wrote. “We say tech equals H2 trouble rather than an era of new A.I. rules.”

The chart below supposes the term “double-top” has meaning when applied to the market cap share of the heavyweights. I’m not sure it does, but I’m willing to give Hartnett the benefit of the doubt because his overarching point (that unless and until the rally convincingly broadens out, the weight of the world rests on the shoulders of just seven stocks) is valid.

Again, the problem isn’t that Hartnett’s concerns are implausible. The problem, like Wilson’s problem, is that this battle (bears versus bulls since the October 2022 lows) is lost. Period. That doesn’t mean you have to turn bullish, but you do have to turn the page. Wilson conceded this month that he was too bearish this year, but I don’t think that quite covers it.

What’s needed, out of respect for everyone’s sanity, is an unequivocal admission that whatever the thesis was for a near- to semi-medium-term retest of the lows for US equities, it was wrong. Not necessarily misguided. And certainly not irrational. But wrong all the same.

To be fair, Hartnett only sees the S&P retreating to 4,200, but he still seems very reluctant to concede the bear case. “Just as ‘lower-for-longer’ rates and yields caused bubble and boom, ‘higher-for-longer” rates and yields will cause pop and bust,” he exclaimed. “Sell the last rate hike.”

He’s probably right in many respects. The same goes for Wilson. But… well, let’s just say that if you were holding your breath, you’d be dead by now. Several times over.