There is always a bullish case for the stock market even though inflation is up and rates are rising


Hello. I am a great reporter Carla Mozée writing to you as we head towards the end of the trading week.

Two steps forward, one step back — that sums up the S&P 500’s uneven performance over the past few days as investors tried to determine whether a sustainable bear market rally could form.

One fear that keeps stocks mired in the red is that the Federal Reserve will tighten monetary policy by failing to follow forward-looking signs that energy prices and other items are already down from recent highs. With that, today’s leading economic index from the Conference Board should be interesting.

Today we also look at a company view that there is still a bullish case to be made for equities, but it is sitting on increasingly shaky ground.

Let’s go.

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1. The bullish scenario for equities is largely based on two elements: inflation and rates.

DataTrek Research co-founder Nicholas Colas told clients this week that investors could propel stocks higher in 2023.

“As we are cautious about the short-term direction of US/global equities, it always pays to consider the other side of the market,” Colas said and noted that the market typically looks six months ahead. when valuing securities.

One factor that would support stock market gains is if investors are confident the U.S. economy has reached a true peak in inflation, he said. Markets were shocked last week when core inflation in September hit 6.6% year-on-year, above expectations and months after the Federal Reserve raised interest rates. interest in cooling prices.

A promising sign is that the five-year forecast annual inflation is around 2.4%, implying a sharp decline from the current rate of 8%.

Another factor to fuel a bull run is a drop in real rates. “TIPS and Fed Funds Futures prices currently support the idea that six months from now inflation will drop and Fed policy will shift to neutral,” Colas said.

The Fed is expected to raise interest rates for the fifth time this year in November. But it also brings policymakers closer to a pause in rate hikes and sets stocks up for a major upside, according to Fundstrat’s Tom Lee.

Has inflation peaked or will underlying prices continue to rise? E-mail [email protected].

In other news:

Elon Musk attends 2022 Met Gala to celebrate "In America: A Fashion Anthology" at the Metropolitan Museum on May 02, 2022

Elon Musk intends to stay at Tesla as long as he can be useful.

Ray Tamarra/Getty Images

2. Tech-rich Nasdaq futures are down pre-market, after Tesla reported record third-quarter revenue but cut its vehicle delivery target. Meanwhile, CEO Elon Musk said Tesla should be worth more than Apple and Saudi Aramco combined. Read more about Musk’s comments – and check out the latest levels here.

3. Earnings on deck: AT&T, Blackstone and Union Pacific all report.

4. Cyclical stocks are trading at a historic discount, according to Goldman Sachs. While the S&P 500 has fallen around 22% this year, US stocks are still expensive relative to history on a price-earnings (P/E) ratio. Check out Goldman’s list of 41 historically cheap stocks.

5. Amazon boss Jeff Bezos warns of impending US recession. The billionaire backed the view of Goldman Sachs CEO David Solomon, who told business owners to prepare for a contraction and greater market volatility. Here’s what Bezos said to his 5.3 million Twitter followers.

6. Retail investors have been the most bearish since this summer. Individual investors have reduced their net purchases of equities in recent days following the inflationary shock in September. Purchases are lagging the year-to-date average which is trending above $1 billion, according to Vanda Research. But here’s what could bring buyers back to speculative assets.

7. Billionaire investor Dan Loeb is signaling intense fear and concern in the markets. The Third Point boss in his third-quarter letter to clients described the anxiety that has plagued financial markets since the summer. However, he thinks there are good deals to consider.

8. A legendary options trader who has taken 70 straight months of profit says he would trade higher call spreads. Tony Saliba is known for maintaining a long winning streak that has generated profits exceeding $100,000. Check out his tips for navigating the market.

9. Morgan Stanley strategists warn that broader earnings expectations are still too high. But within their bearish outlook lie hidden gems for this earnings season. Take a look at the bank’s list of 7 stocks that have “significant” upside potential in the near term.

WTI Oil Chart for October 19, 2022

WTI Oil Chart for October 19, 2022

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10. Oil prices could soar to $150 a barrel next year, says JP Morgan. The company’s global head of energy strategy says underinvestment in the industry could lead to supply shortages over the next decade. Cautiousness over tight supply helped push oil prices higher on Wednesday. Learn more about JP Morgan’s perspective on underinvestment.

Keep up to date with the latest market news throughout the day by checking out The Refresh from Insider, a dynamic brief audio from Insider’s newsroom. Listen now.

Organized by Carla Mozée. Feedback or tips? Email [email protected].


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