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McElligott Sees ‘Big Problems’ For 2023 ‘Big Sharpe’ Trades
One risk headed into earnings was the abatement of the low bar dynamic.
Low bars are easy to clear, so while it's comforting on many levels to see earnings revisions inflect for the better (or stabilize), it means the hurdle is higher for corporates come reporting season. I warned on this weeks ago, and it's starting to bite.
"That longtime crutch of equities markets -- the fundamentals of EPS / revenue 'beats versus low-bar expectations' -- has been flipped on its head," Nomura's Charlie McEl
Now that the S&P has retraced the entire June post debt-ceiling breakout, joining mid and small caps which retracted (and then some) their rallies weeks ago, I think it’s now official: we all owe Mike Wilson an apology.
The Nasdaq 100 is up 25% since Wilson took profits on a well-timed tactical long instituted in mid-October 2022 (took profits December of 2022). I like Mike’s stuff as much as (and, I’d wager, a lot more than) the next market participant, but investors would do well to disabuse themselves of the tendency to declare bears “right” when stocks correct after a huge rally. You can observe a similar dynamic with the legions of unfortunate souls who still read the bear blogs that rose out of the ashes of the GFC. Occasionally (e.g., during the March 2020 crash) you’ll see people claiming those blogs were “right.” The harsh reality is this: If you predict imminent (or semi-imminent) downside and you get lots of upside instead, the odds of equities correcting to meet your downside target (implied or otherwise) later become vanishingly small, pretty fast. Wilson was wrong. Period. I love the guy, but no apologies are owed. If you listened to him, you missed the best first half for the Nasdaq 100 in recorded history. Let that sink in.
Also (because I realize this isn’t always apparent to folks), Charlie is on a different side of the sell-side (if you will) versus Wilson, David Kostin, Savita S., etc. The reason Charlie’s stuff is so dynamic, colorful and just generally “ear-to-the-street” is because he’s in the thick of it. In the proverbial trenches. That’s one (among many) reasons people love Charlie. His stuff comes straight from the frontlines.
He also shines light on what recently have been the largest and most important short- and medium-term flows, even eclipsing share buybacks.
His insight is much appreciated.
+1
The Nasdaq 100 is the only index you can say that about. The S&P 500, 400 and 600 (and others) are all back into the range stretching for most of 2022 and H1 2023. Yes, one could have tactically traded the swings and done well, if that’s you’re style. Or been smart enough to jump of the AI mania, while it lasted. But many, including me, expected these pullbacks to be bought before a resumption to new highs, while he warned of false breakouts. Maybe we’re near the low and we’ll get an oversold bounce into positive seasonality for a rocket ship to new highs, but I am apologizing to the man. I thought his bear call was crazy and now it seems much less crazy.
Yeah, I mean Mike’s the opposite of crazy. He’s Mr. Rational. And that’s sometimes the problem: Wilson’s an eminently rational guy (or at least when he’s talking about equities) whose job it is to forecast a notoriously irrational asset. 🙂
Now that etf carry lion share of bonds – bonds r increasingly irrational too – kite strings?
H-Man, if you trade flow on a short term horizon, Charlie is the bible. Stretch that horizon and Wilson becomes relevant but not a prophet. Go long on the horizon and you buy index funds sending Charlie and Wilson to the trash can since the commentary is no more than noise. Probably better to evaluate the wisdom based upon your horizon.