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.
For what it's worth, he doesn't lean much on the point that no bear-market rally has ever gained 50%+ of total losses (since 1950 on a closing basis) and then go make a new low. Says there have been too many failed rallies very close to that magnitude for comfort.
#MysteryBroker continues to say inflation's on a sustained downswing, “by all measures supply chain issues are improving,” productivity bottoming. Wild card: He sees a coup/assassination of Putin a “much higher possibility than investors have handicapped,” would drop oil prices.
The #MysteryBroker sees one shorter-term bullish scenario that would be a huge head fake, essentially the “deferred-recession” possibility...
The #MysteryBroker notes the shortest time historically from inversion of the 3-month/10-year Treasury curve has been eight months. If it inverts next month as seems likely, the front edge of the recession onset window is May 2023...
Because stocks have tended to peak an average six months before recession, #MysteryBroker says it would mean the S&P rallies to a new high by mid-2023 before starting to discount a late-2023 recession.
The #MysteryBroker notes this would rebuild investor complacency, with the Fed likely stopping rate hikes in coming months, and would also fit with the very strong historical strength in stocks from a mid-term election into June the following year.
In the here and now, bottom line, #MysteryBroker is alert to the bullish potential, and believes the next 30 days will be the tell, but remains concerned the Fed will “ignore the upcoming favorable inflation data” and over-tighten into recession.
That's it for now. Please pay attention to the fine print here...
https://twitter.com/michaelsantoli/status/1126487466540617728
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