Heading to Italy this summer to see my daughter who is studying there. Been almost 10 years now since I was in Europe so I am quite looking forward to it. I remain divided right now as well because I understand and agree with the drivers of negative views. However, I still struggle with the idea that 90% of the emails/blogs/articles I read are negative as well. I don't even include FinTwit in here because I don't know if it is ever positive. Perhaps my narrow Midwest perspective does not capture bigger views, but the local economies here (Illinois, Wisconsin, Michigan, Indiana) are bustling. Friends from banking to insurance to tech to healthcare are all busy and still trying to hire. I imagine the views on each coast are not as positive since tech companies are announcing layoffs and the capital markets have stalled which affects everything from bankers to VC and PvtEq. However, I still think there are drivers that keep this from being a recession this year, which coupled with negative views on the street, lead me to think we could have a bigger rally than usual. Interestingly, you mention 1987 and I think about whether we could get a summer rally because ISM and other data hold up, only to see the market crushed in September when there is not a dovish pivot from the central bankers and we are now within 6 months or so of that low in ISM approaching. Perhaps I am trying to be too nuanced however. Appreciate your thoughts.
Ex- First question, where are you going this summer? That aside here a few comments. I looked at May low vs Summer high, 1980-2021, avg is 7.9%, and statistically, there is a 41% chance of a 10% rally. Bad news, is that from 3800 low, we already got close to the 10% move. On ISM, it was higher that all but two of the 63 economists polled by Bloomberg. It seemed on the surface quite an odd number, not consistent with a lot of things, namely the regional surveys. Yet, it was clear that markets, particularly the bond market, took it quite seriously. There is no sense in the near 20bp move higher that bond investors were discounting it as a fluke. Historically, ISM cycles last about 20 months in terms of high to low. Peak was March 2021. So low should be early next year. But what is clear is that the path of this one is following a very benign path which harkens back to the 1987 and 2011 paths, which also had shallow declines, and neither led to recession, which still is the big question as you know because the size and duration of the downmove in equities is going to be linked to whether those calling for recession are needly hyperventilating or perhaps they are accurately seeing into the future. I remain divided on this question.
Heading to Italy this summer to see my daughter who is studying there. Been almost 10 years now since I was in Europe so I am quite looking forward to it. I remain divided right now as well because I understand and agree with the drivers of negative views. However, I still struggle with the idea that 90% of the emails/blogs/articles I read are negative as well. I don't even include FinTwit in here because I don't know if it is ever positive. Perhaps my narrow Midwest perspective does not capture bigger views, but the local economies here (Illinois, Wisconsin, Michigan, Indiana) are bustling. Friends from banking to insurance to tech to healthcare are all busy and still trying to hire. I imagine the views on each coast are not as positive since tech companies are announcing layoffs and the capital markets have stalled which affects everything from bankers to VC and PvtEq. However, I still think there are drivers that keep this from being a recession this year, which coupled with negative views on the street, lead me to think we could have a bigger rally than usual. Interestingly, you mention 1987 and I think about whether we could get a summer rally because ISM and other data hold up, only to see the market crushed in September when there is not a dovish pivot from the central bankers and we are now within 6 months or so of that low in ISM approaching. Perhaps I am trying to be too nuanced however. Appreciate your thoughts.
Ex- First question, where are you going this summer? That aside here a few comments. I looked at May low vs Summer high, 1980-2021, avg is 7.9%, and statistically, there is a 41% chance of a 10% rally. Bad news, is that from 3800 low, we already got close to the 10% move. On ISM, it was higher that all but two of the 63 economists polled by Bloomberg. It seemed on the surface quite an odd number, not consistent with a lot of things, namely the regional surveys. Yet, it was clear that markets, particularly the bond market, took it quite seriously. There is no sense in the near 20bp move higher that bond investors were discounting it as a fluke. Historically, ISM cycles last about 20 months in terms of high to low. Peak was March 2021. So low should be early next year. But what is clear is that the path of this one is following a very benign path which harkens back to the 1987 and 2011 paths, which also had shallow declines, and neither led to recession, which still is the big question as you know because the size and duration of the downmove in equities is going to be linked to whether those calling for recession are needly hyperventilating or perhaps they are accurately seeing into the future. I remain divided on this question.