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.
The #MysteryBroker remains fixated on the lagged impact of Fed rate hikes, big drop in Leading Economic Indicators, ECRI model forecasting a 2023 downturn, yield-curve inversions in anticipating likely recession. Cyclical sectors should suffer; he's especially bearish on energy.
#MysteryBroker sees energy stocks way too popular/crowded, finds a contradiction in how many investors say "Don't fight the Fed" yet love energy stocks. The Fed's targeting aggregate demand and headline inflation. "Being overweight energy is fighting the Fed, it is that simple."
Summing up, #MysteryBroker says "Inflation rates are going to come down faster than expected and economic growth will really begin to slow early next year. Employment numbers will be the last straw to fall. The last Fed rate hike will be in December."
The #MysteryBroker says longer-term Treasuries are the way to play what he sees coming, he thinks the 10-year yield can fall to 2% next year. Believes high-yield bonds are vulnerable, credit spreads way too tight, would not touch them here.
That's it for now. Don't ask for elaboration or updates. Heed the rules.
https://twitter.com/michaelsantoli/status/1126487466540617728
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