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A long #MysteryBroker update overnight boils down like this: He's very skeptical a new bull market is underway, even though it looks like a long multi-month base in the S&P 500 and we got a classic October bottom/midterm tailwinds with some strong breadth.
#MysteryBroker says the market usually "doesn’t give investors a chance to get in during the first four-month thrust," meaning it typically logs a 20%+ gain; this one didn't. He's wary that this could be rerun of the strong Jan '01 and Sept '01-Jan '02 bear-market rallies.
The #MysteryBroker notes that, at those times, the bear market resumed in part because valuations were still too high and the slide in profits deepened. Also says leadership of this rally hasn't been persuasive ($XLY not up enough to suggest a new bull market, for instance.)
An update from the #MysteryBroker arrived overnight, including a review of his 2022 calls and a generally cautious outlook for this year...
Without getting into all details, last year #MysteryBroker started correctly bearish on bonds, then warmed to them with 10-yr Treasury yield rising toward 3.5%. He still likes Treasuries, thinks the 10-year will approach 2% some time this year, and is avoiding high-yield paper.
The #MysteryBroker was ahead of the "peak inflation" trade by mid-2022 and flagged tactical rallies (Jan, Feb, May-June) with some success, preferred value over growth/tech all year, while flipping cautious at times such as in early September and early December.
A #MysteryBroker update. To recap: MB in recent months has been firmly in the peak-inflation/peak-yield camp, seeing value in Treasuries, believing the Fed was in the process of overtightening into a recession, while seeing the makings of a tactical equity rally in mid-Oct.
The #MysteryBroker now says the stock market's in a fleeting "honeymoon period" where "investors become giddy over signs of the end of increasing inflation and interest rates, while ignoring what is to come on the other side" - probable recession and falling earnings forecasts.
The #MysteryBroker says S&P 500 likely won't rise much above 4150 on this run. Notes bear-market rallies tend to last one-and-a-half to two months, so the current one (started in mid-October) is getting mature, though he figures stocks should remain "OK" until he end of the year.
#MysteryBroker fleshes out his call for a market bounce after trimming his hedge Friday.
Mostly about oversold conditions (21-day McClellan Oscillator, AAII bears @ 60%, put/call ratio and open interest p/c extreme lows among "smart money" OEX traders).
Mostly about oversold conditions (21-day McClellan Oscillator, AAII bears @ 60%, put/call ratio and open interest p/c extreme lows among "smart money" OEX traders).
The #MysteryBroker concedes the market often bounces at a former low on first try even if the retest ultimately is due to fail. But: "historically if an investor buys at theses levels within a couple of weeks the stock market will be higher even if it declines more" initially.
#MysteryBroker says he still thinks the 10-yr Treasury is "a fantastic buy" at/over 3.5%. "Inflation has clearly peaked even if the official data has lagged the turn" and real yields now quite positive. Sees global yield peak soon, removing some upward pressure on US yields.
The #MysteryBroker went to a short-term sell on the market this morning.
No details. Last week he said S&P 500 would likely continue higher into this week. But he's been arguing inflation would fall hard (not yet) and has been concerned Fed is poised to overtighten (maybe?).
No details. Last week he said S&P 500 would likely continue higher into this week. But he's been arguing inflation would fall hard (not yet) and has been concerned Fed is poised to overtighten (maybe?).
Will offer details when available, maybe tomorrow. Meantime just read the rules. Especially the part about me just sharing this stuff because people ask for it.
Just to flesh out #MysteryBroker's move to go to a short-term sell on the market: In practical terms it meant hedging aggressive accounts via S&P 500 puts with the index a bit above 4000 yesterday morning...
A #MysteryBroker overnight update points out McClellan Oscillator flashing rare extreme oversold reading Tuesday (seen after big drops in 2010, '11, '18 and '20) that usually triggers short-term 3-5% S&P 500 rallies and further upside follow-through often, though not always.
The #MysteryBroker's "best guess" is the S&P 500 continues to rise into next week, as he expects the inflation reports to come in "favorable." He continues to see inflation falling hard on its own, and worries the Fed will ignore it and overtighten by 75bp the following week.
The #MysteryBroker sees investors caught flat-footed by the recent run of better-than-expected economic news and ebbing inflation, combined with a Fed not willing to go slower. Given this, be offers no longer-term high-conviction broad-market call.
Catching up on the latest #MysteryBroker dispatch, in which he details several elements of he bull case for stocks from here, while saying that it is not yet his "base case..."
The #MysteryBroker notes the 19% S&P 500 rally (intraday low to high) had some of the elements “necessary for a new bull market to take hold.” Breadth of the rally, leadership by high-beta stocks, credit spreads narrowing. He also likes the continued investor skepticism...
The #MysteryBroker says outperformance by financial stocks in the rebound wasn't present - a missing element of the new-bull-market case. In any case, he says the S&P 500 needs to reach 4545 (a 25% gain) by Sept. 16, or at the outside by Oct. 2, to prove it’s a bull market.
Having most recently argued weeks ago that Street sentiment was way too negative on recession odds, corporate earnings and stock prices, the #MysteryBroker weighs in on the current key market juncture, lays out a few likely scenarios rather than a single high-conviction view...
Before detailing the scenarios, #MysteryBroker sees the ultimate path from here almost wholly dependent on whether the Fed responds to forward-looking inflation indicators that suggest to him inflation is already headed down decisively by moderating its tightening plans - or not.
First scenario, #MysteryBroker says is a pure bear-market rally, S&P peaks no higher than 4200, drops to an ultimate bottom between 3150 and 3400. This would require a recession start by early next year "at the latest..."
The #MysteryBroker checks in to rail incredulously at the Fed's apparent intent to push ahead with more and bigger rate hikes based on "lagging" CPI numbers in the face of clear market and data indicators "signaling a significant decline in inflation over the next year."
The #MysteryBroker says if the Fed hikes 75-100bp in July and another 50-75bp in September, "a recession is very likely to begin by early next year. The stock market would decline 30 to 35% from the all time high in that scenario." Implies an S&P 500 3100-3300 in this bear case.
Still, #MysteryBroker adds that his "base case is that the Fed only raises 75 basis points in July and then either pauses or raises 25 basis points in September as the data clearly reveals lower future inflation rates." Would mean more limited downside risk to equities.
In overnight update, #MysteryBroker criticizes the Fed for trapping itself by focusing on gas prices and UMich inflation expectations just as core inflation is rolling over, but still sees risks to earnings and the economy being generally overstated by observers and the markets.
The #MysteryBroker believes earnings should be more resilient than feared given high nominal GDP growth and disappointments are more about underappreciated impact of China lockdowns and pivot away from home/goods spending than true consumer/business stress.
Current #MysteryBroker take: "The stock market is already discounting a mild recession. Don’t believe we will have anything worse than a moderate recession ahead and there are many good values...The Fed tightening cycle will be much shorter than consensus expects."
The #MysteryBroker weighs in after Friday's bounce to say it "likely" marked the low for the current phase of the downturn, sees 4-6-week rally totaling 8-15% in S&P 500 based on some rare oversold indicators and persistent bearish sentiment.
The #MysteryBroker notes the extensive history of S&P 500 declines that ended just short of 20% (as I detailed last week - '90, '98, '11, '18), saying the crucial variable that determines if such a drop goes much further is whether a recession hits within months. He thinks not.
The #MysteryBroker says his base case for 2022 has been a low in October (fitting the mid-term election year pattern,) but a chance last week was the low in part because so few believe it and the key bearish factors (rate-hike expectations and inflation) might well have peaked.
The #MysteryBroker checks in: Pessimism has reached extremes (historic lows in AAII survey bulls, equity fund outflows, his proprietary sentiment gauge), limits immediate downside and improves multi-month risk/reward for stocks given imminent-recession fears he sees as overdone.
The #MysteryBroker thinks the market has probably overshot likely Fed rate-hike path, Treasury yields set to peak within two weeks and ease lower for a couple months. He’s among those who think we’re tracking the 1994 bond-crash/Fed-hiking/volatile-stocks scenario.
The #MysteryBroker sees commodity, used-car inflation ebbing, views oil/food inflation as largely neutral for the economy in aggregate. Travel, auto demand strong. Earnings look OK, S&P 500 P/E 18.6x but a more reasonable 16x ex the largest 5 stocks.
The #MysteryBroker checks in to say he's unconcerned by the various Treasury yield curve inversions that have many on edge. History shows plenty of false signals and long lead times before a recession. The 3-mo/10-yr curve may invert early 2023, then maybe a year until recession.
The #MysteryBroker continues to see the economy in decent shape, believes in the shift toward services spending, pent-up auto demand, Earnings are spottier (inflation beneficiaries supporting consensus numbers), but are holding up. Risks are inventory buildup and housing unwind.
On stocks, #MysteryBroker was aggressive with bullish calls near all three of the 2022 trading lows (late Jan,, late Feb, mid-March). Now says valuations are not excessive, expects "stock market to be OK until at least the third week of April." Doesn't think it's a bear market.
A #MysteryBroker update overnight, the first since he recommended buying into the Russia invasion news. The S&P is down a bit since, still above the Feb. 24 intraday low. The West shunning Russian oil/gas was an unforeseen wrinkle. He again says stocks are "close to a bottom."
The #MysteryBroker acknowledges S&P 500 is in a "perfect downtrend" and not grossly oversold yet by standard measures. Yet with his sentiment composite close to levels hit near the end of corrections ion 2011, 2016 and 2018, indicators "sufficiently bearish" to enable a bottom.
The #MysteryBroker has high conviction US not headed for recession this year. The 3-mo/10-yr spread is the yield curve most crucial in indicating recession when it inverts and it's nowhere close. Of the last nine 15%+ S&P corrections, only three were soon followed by recession.
I’m off this week but did get a #MysteryBroker update overnight. He’s a buyer into the equity weakness, sees it as essentially a retest of the Jan. 24 low, his sentiment gauge showing a pessimism level last seen near the the late-2018 market low.
The #MysteryBroker says historically markets bottom as an “expected war” begins after stocks were already declining. Little economic risk from Ukraine conflict. Credit, yield curve (3-mo./10-year) and financial-stock outperformance show this is not about coming economic weakness.
The #MysteryBroker says Fed has plenty of room to hike before inverting yield curve or risking recession. Q1 economic lull will be brief. “Buy on the war scare.” Likes companies w/ supply chain issues (over-penalized by investors) and even some hypergrowth names look reasonable.
Catching up on #MysteryBroker outlook: He came into 2022 expecting moderate S&P 500 gains, upward tilt into May and again in Q4, tougher in between. Opposite the popular "tough 1H, good 2H" call. Sees value, small/mid-cap outperforming. Cyclicals better in first half, then fade.
Note that #MysteryBroker favored value/cyclicals through 2021 and was calling much of speculative tech a bubble back in December 2020. And this is what he said right as it was peaking...
As for the current tactical setup, he says he expects "a bottom in high-growth tech by tomorrow." Continues to like $QCOM and $INTC, even thinks many busted IPOs are attractive ($COOK, $SGHT, $TMCI). Thinks Covid recovery plays and supply-chain victims will do better soon.
The #MysteryBroker weighed in overnight with an update. While he's nagged by the profound divergence between the Russell 2000 and big-cap indexes and a Fed moving toward tightening, he still believes the market is likely to rally further into year-end...
The #MysteryBroker says the recent shakeout in the market has left some genuine values in parts of the market for the first time since late 2020, mainly in cyclical stocks that have declined significantly due to the Covid resurgence and/or supply chain disruptions.
On Russell 2000 weakness, #MysteryBroker points out the only prior times the index fell this hard from a record high were 2000, 2007 and 2020. Ominous, perhaps, given what came next, but he notes that bear markets have never started with housing stocks at highs (ex-2020).
The #MysteryBroker checked in overnight. Still cautious, mindful of the consistent tendency for weakness from this point in Sept. into early Oct. Likens the backdrop to Sept. 2020: Poor market breadth for many weeks, growth stocks holding up indexes until they no longer could.
The swing toward bearish sentiment in the AAII survey last week and outsize focus on Sept. weakness by pundits gives #MysteryBroker some pause in his correction call. Says hard for stocks to "really break down" (more than a 10% correction) when AAII bears surge like this.
Though #MysteryBroker says there was a similar shift toward negative retail sentiment the week ended Sept, 10, 2020, and there was further downside from there in that correction. Or maybe a bounce soon and some weakness gets shifted into October.
Catching up on the latest from #MysteryBroker, who checked in near the end of August. I was away for a bit, he didn't really change his outlook, and I never got around to an update. Until now...
The #MysteryBroker continues to think summer breadth divergences in the stock market have been "unhealthy" and more likely to drag down indexes than resolve to the upside. Still doesn't like overall equity-index risk/reward, believes real economy is fine, prefers value stocks...
The #MysteryBroker thinks "stay-at-home" stocks are still overvalued/over-loved.
Expects the market to start discounting a semiconductor glut early next year. Likes $QCOM, thinks $NVDA way too crowded/expensive...
Expects the market to start discounting a semiconductor glut early next year. Likes $QCOM, thinks $NVDA way too crowded/expensive...
Off and unplugged this week but sharing a no-real-change #MysteryBroker update from Monday. He notes Delta surge has fed a Goldilocks trade (bond rally, growth stocks carry S&P) but could flip with a mid-Aug. US Delta peak, which would match the UK case-growth trajectory.
The #MysteryBroker says ongoing weak market breadth/seasonal headwinds keep him cautious on the broad market. Any relative-performance shift from growth back to his favored value/cyclicals could come in the context of a weaker tape. Remains firmly upbeat on the real economy.
Final note, #MysteryBroker takes a bit of a victory lap on one of his contrarian/pre-pandemic and then mid-pandemic stock picks, L Brands. With its split executed into Bath & Body Works and Victoria’s Secret, their combined share prices now about at his LB fair-value target.
The #MysteryBroker says he's not changing his view, still sees very little further S&P upside and significant correction before long.
Continues to believe outperformance of cyclical/value over growth will resume and persist longer than most expect, if by a more moderate degree.
Continues to believe outperformance of cyclical/value over growth will resume and persist longer than most expect, if by a more moderate degree.
Since #MysteryBroker turned cautious two months ago, S&P 500 is +1.5% and had a 4-5% pullback. The growth-stock bounce has been unconvincing, he says. He sees Treasury yields resuming their climb by July as employment strengthens, thinks somewhat higher inflation will be sticky.
While #MysteryBroker says stocks may lift into the Fed meeting, as they often do, he sees a risk that the Fed decision could be the prompt for a selloff given how investor complacency has grown lately.
The #MysteryBroker went to a short-term Sell on stocks at Friday's close.
After a 90% surge in S&P 500 in 13 months, expects a tough correction lasting perhaps 3-6 months. Analogous to the deep 2010 correction, which was not previewed by serious divergences or other warnings.
After a 90% surge in S&P 500 in 13 months, expects a tough correction lasting perhaps 3-6 months. Analogous to the deep 2010 correction, which was not previewed by serious divergences or other warnings.
The #MysteryBroker concedes he might be a week or two early with his call, but whatever further upside comes near term would likely be given back quickly.
He notes overall market breadth/small-caps peaked March 15, beta subsectors (spec-tech, EVs, meme stocks) have deflated.
He notes overall market breadth/small-caps peaked March 15, beta subsectors (spec-tech, EVs, meme stocks) have deflated.
The #MysteryBroker says recent isn't focused on on any particular catalysts, just sees sentiment, extended technicals and reduced risk/reward (Value Line Appreciation Potential was very high in March 2020, now at extreme lows, augurs poorly for small/mid-cap returns).
A #MysteryBroker update arrived overnight. Most is a skeptical take on crypto.
But on stocks, he says the rally's reached the upper limit of his recent forecast, he sees excess bullishness as a problem. Isn't calling for an immediate correction yet, but "getting very close."
But on stocks, he says the rally's reached the upper limit of his recent forecast, he sees excess bullishness as a problem. Isn't calling for an immediate correction yet, but "getting very close."
On crypto, #MysteryBroker is a non-believer, says Bitcoin is the one speculative part of the market that hasn't corrected dramatically (as solar, cannabis, pre-profit hypergrowth tech have).
Says the $COIN public listing will "likely mark the top" for cryptocurrencies.
Says the $COIN public listing will "likely mark the top" for cryptocurrencies.
The #MysteryBroker cites lack of intrinsic value in crypto (he also won't own gold, art, collectibles either).
Even if crypto displaces gold as investment asset, sees potential market much lower than total value of gold (~$10T) because half of gold demand is jewelry/industrial.
Even if crypto displaces gold as investment asset, sees potential market much lower than total value of gold (~$10T) because half of gold demand is jewelry/industrial.
Got a quick #MysteryBroker update.
But first, a reminder of what he was saying coming into 2021 about frothy hyper-growth tech and the cyclical/value rotation...
But first, a reminder of what he was saying coming into 2021 about frothy hyper-growth tech and the cyclical/value rotation...
The #MysteryBroker says, "The speculative tech bubble of 2020-21 has officially burst. The recent crash in speculative tech stocks is not a garden variety correction." Yes, there will be good bounces but for blasted growth tech he sees no real bottom until at least early Fall.
The #MysteryBroker has preferred small-caps and value since last summer, and still does. "This trade is not over and may last a few years," he says.
