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Jul 6 • 5 tweets • 2 min read
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."
Final note, the #MysteryBroker weighs in on crypto. He said in early 2021 the $COIN IPO would likely mark the top of crypto (see copied tweet). Close enough, Says his downside Bitcoin target is $10-12k, but he'd cover half of any short positions now.

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More from @michaelsantoli

Michael Santoli Profile picture
May 16
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.
Read 6 tweets
Michael Santoli Profile picture
Apr 25
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.
Read 7 tweets
Michael Santoli Profile picture
Apr 5
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.
Read 5 tweets
Michael Santoli Profile picture
Mar 15
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.
Read 6 tweets
Michael Santoli Profile picture
Feb 22
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.
Read 4 tweets
Michael Santoli Profile picture
Jan 10
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.
Read 4 tweets

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