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Kantro

Jul 9 • 3 tweets • 2 min read

The rotation from value to growth since May was an early indication that investor fears were migrating from inflation to recession. We expect this to continue. Investors should avoid the unprofitable tails of style - “zombie value” and “pipe-dream growth.” 1/3

2/3 Negative EPS companies are the worst performing in 2022 - regardless of their style.

3/3 negative EPS stocks consistently underperform following a peak in PMIs (leading economic indicator). Below is a clear message from our event study factor dashboard. We’ve got data for days 😎🍭🍬🍫#macro #EPS

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Kantro

@MichaelKantro

May 20

Why do markets bottom? It’s the economy.

Not sentiment, cash levels, valuation, drawdown %, or day of the week. A Fed pivot, on its own, only led to a rebound in ‘87 and ‘18. The other 19 material sell offs since 1950, it was leading indicators of the economy. #macro $SPY 1/2

Who is feeling lucky?

Why is the economy? Because that what drives earnings and risks (P/Es).

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Kantro

@MichaelKantro

May 9

1/3 … When will P/Es stop falling?

Answer: when risks stop rising.

Rising rates, inflation and oil have been the risks YTD in 2022. The next big risk will be declining EPS estimates and widening credit spreads. That risk won’t PEAK until PMIs bottom.

2/3 It’s a misconception that stocks are falling BECAUSE they are expensive.

Stocks are falling because rates and risks are rising.

Stocks P/Es began falling as interest rates began rising. Next, cyclicals’ PEs will decline as credit spreads rise and EPS fall.

3/3 stock valuations decline from ANY level, high or low, when risks rise. We’ve had plenty of bear markets that begin with below avg P/Es. 2008 was one of them. #macro $SPY

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