These cycles repeat - near the end of EVERY tightening cycle..

1) yields decline, stocks rally (P/E)
2) housing stocks rally; data bounce
3) soft landing is priced in (yes, every time)
4) credit spreads tighten
5) job market looks ok

All repeating in ‘2023

#macro #hope Last 4 cycles …

Love your stuff @AndreasSteno but I have to emphatically disagree with your conclusion here. It wasn’t peak CPI that lifted stocks, it’s was Fed rate cuts followed by a HUGE eco recovery (PMIs 🆙, claims ⬇️), as CPI happen to peak, that did it IMO. Charts (2) speak for themselves

https://twitter.com/AndreasSteno/status/1580438181643780096

PMIs are only trending one direction for a while - same for housing. Same reasons we called BS on the market rally in August - wasn’t consistent with EVERY other market low

Bear market rally #4 update. The inflation & interest rate bear market is likely behind us. What's next? The market needs fundamental support to continue higher - that's not coming for several more quarters. Another bear market is coming - earnings & employment. My 2c #macro $SPY Respect the LAG of food and energy inflation ...

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?

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.