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Business

Stocks got wrecked by rate shock in 2022. Here’s what will drive market in 2023.

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2022 is over. Take a breath.

Investors were understandably eager to ring the bell on the stock market’s worst year since 2008, with the S&P 500
SPX,
-0.25%
falling 19.4%, the Dow Jones Industrial Average
DJIA,
-0.22%
dropping 8.8% and the Nasdaq Composite
COMP,
-0.11%
shedding 33.1%.

Adding to the pain, the bond market was also a disaster, with some segments seeing their biggest annual losses in history while U.S. Treasury prices slumped, sending yields soaring.

That offered a rare double whammy for investors, who usually see portfolios cushioned by bonds when equities suffer.

So now what? The flip of the calendar doesn’t make the factors that drove market losses in 2022 go away, but it offers investors an opportunity to think about how the economy and the markets will evolve in the year ahead.

A rate shock as the Federal Reserve ratcheted up interest rates at a historically rapid pace in its effort to rein in inflation set the tone in 2022. A return to higher rates — and what may be the end of a four-decade era of falling interest rates — is expected to reverberate in 2023 and beyond.

The Tell: End of 40-year era of falling interest rates is crucial ‘sea change’ for investors: Howard Marks

While inflation, still elevated, shows signs it has peaked, the market was robbed of a seasonal rally heading into the new year by fears the Fed’s continued efforts will spark a recession that will devastate corporate earnings in 2023.

Read: How a Santa Claus rally, or lack thereof, sets the stage for the stock market in first quarter

The interplay between Fed policy, inflation, economic growth and earnings will drive the market in 2023, analysts say.

The Fed

“This has been a Fed-led market that’s been predicated on inflation that was not transitory,” as monetary policy makers had initially believed, said Quincy Krosby, chief global strategist at LPL Financial, in a phone interview.

The Fed dropped the “transitory rhetoric” and launched an aggressive campaign to tackle inflation. “That’s led to a market that’s concerned about economic growth and whether we enter 2023 facing a significant economic downturn,” Krosby said.

Inflation

Investors, however, might find some optimism in signs inflation has peaked, analysts said.

“The days of sub-2% CPI that we enjoyed from ’08-’20 are likely gone, possibly for a long time. But inflation could fall far enough (3%-4%) for the Fed to essentially think it has accomplished its mission (although it won’t say it directly as the target is still 2%), but for all intents and purposes, we could exit 2023 without a material inflation problem,” said Tom Essaye, president of Sevens Report Research, in a Friday note.

Skeptics doubt that a slowdown in inflation will be sufficient to keep the Fed from following through on its indications it intends to raise the fed-funds rate above 5% and keep it there for some time.

Hedge-fund titan David Tepper in a December interview with CNBC said he was “leaning short” on the stock market “because I think the upside/downside just doesn’t make sense to me when I have so many…central banks telling me what they’re going to do.”

See: Fed officials reinforce stern message of slowing inflation by higher interest rates

Recession fears

A resilient job market so far has optimists — and Fed officials — arguing that the economy could avoid a so-called hard landing as monetary policy continues to tighten.

Also read: Stock-market investors face 3 recession scenarios in 2023

Investors, however, “are anticipating an economic recession to materialize early in 2023, as evidenced by the three quarters of projected S&P 500 index earnings declines and continued defensive sector leanings,” said Sam Stovall, chief investment strategist at CFRA, in a Wednesday note. “The severity of the recession remains in question. We expect it to be mild.”

The bear market for the S&P 500 is backdated to Jan. 3, 2022, when it closed at a record high before beginning its slide. It ended with a yearly loss of 19.4%.

“The average bear market since World War II has lasted 14 months and resulted in a decline of 35.7% from the previous high,” wrote analysts at Glenmede in a December note.

“At approximately 12 months and 20%, the current bear market appears to be close to 2/3 of the way through the typical bear-market decline. The current market appears to be following a similar trajectory of an average historical bear market so far,” they wrote. “Based on past trends, on average, bear markets do not bottom until after a recession begins, but before a recession ends.”

Related: How long will stocks stay in a bear market? It hinges on if a recession hits, says Wells Fargo Institute

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Business

Dow falls nearly 500 points after strong data, bearish comments by David Tepper

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U.S. stocks traded lower on Thursday, erasing most of their gains from their biggest rally in three weeks after a round of upbeat economic data and a warning from hedge-fund titan David Tepper that he was “leaning short” against both stocks and bonds on expectations the Federal Reserve and other central banks will continue tightening into 2023.

Positive economic news can be a negative for stocks by underlining expectations that monetary policy makers will remain aggressive in their efforts to quash inflation.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -1.51%
    fell 472 points, or 1.4%, to 32,903.
  • The S&P 500
    SPX,
    -1.99%
    shed 71 points, or 1.8%, to 3,807.
  • The Nasdaq Composite
    COMP,
    -2.84%
    fell 272 points, or 2.5%, to 10,437.

A day earlier, all three major indexes recorded their best gain in three weeks as the Dow advanced 526.74 points.

What’s driving markets

Investors saw another raft of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product which showed the U.S. economy expanded more quickly than previously believed. Growth was revised up to 3.2%, up from 2.9% from the previous revision released last month.

See: Economy grew at 3.2% rate in third quarter thanks to strong consumer spending

The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new filings remained low and signaled the labor market is still quite strong. Economists polled by The Wall Street Journal had forecast new claims would total 220,000 in the seven days ending Dec 17.

“Jobless claims ticking slightly up but coming in below expectations could be a sign that the Fed’s wish of a slowing labor market will have to wait until 2023. While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in emailed comments.

“While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” he wrote. “It’s no surprise to see the market take a breather today after yesterday’s rally as investors parse through earnings data, and despite some beats this week, expectations that earnings will remain as resilient in 2023 may be overblown.”

Stocks were feeling pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue hiking interest rates.

“I would probably say I’m leaning short on the equity markets right now because the upside-downside doesn’t make sense to me when I have so many people, so many central banks, telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a CNBC interview.

Key Words: Billionaire investor David Tepper would ‘lean short’ on stock market because central banks are saying ‘what they’re going to do’

A day earlier, the Conference Board’s consumer confidence survey came in at an eight-month high, which helped stoke a rally in stocks initially spurred by strong earnings from Nike Inc. and FedEx Corp. released Tuesday evening. This optimistic outlook helped stocks clinch their best daily performance in three weeks.

Volumes are starting to dry up as the year winds down, making markets more susceptible to bigger moves. According to Dow Jones Market Data, Wednesday saw the least combined volume on major exchanges since Nov. 29.

Read: Is the stock market open on Monday after Christmas Day?

In other economic data news, the U.S. leading index fell a sharp 1% in November, suggesting that the U.S. economy is heading toward a downturn.

Many market strategists are positioned defensively as they expect stocks could tumble to fresh lows in the new year.

See: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?

Katie Stockton, a technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should brace for more downside ahead.

“We expect the major indices to remain firm next week, helped by oversold conditions, but would brace for more downside in January given the recent downturn,” Stockton said.

Others said the latest data and comments from Tepper have simply refocused investors on the fact that the Fed, European Central Bank and now the Bank of Japan are preparing to continue tightening monetary policy.

“Yesterday was the short covering rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, president and managing director of the Wealth Alliance.

Single-stock movers
  • AMC Entertainment Holdings 
    AMC,
    -14.91%
    was down sharply after the movie theater operator announced a $110 million equity capital raise.
  • Tesla Inc. 
    TSLA,
    -8.18%
    shares continued to tumble as the company has been one of the worst performers on the S&P 500 this year.
  • Shares of Verizon Communications Inc. 
    VZ,
    -0.53%
    were down again on Thursday as the company heads for its worst year on record.
  • Shares of CarMax Inc. 
    KMX,
    -6.60%
    tumbled after the used vehicle seller reported fiscal third-quarter profit and sales that dropped well below expectations.
  • Chipmakers and suppliers of equipment and materials, including Nvidia Corp.
    NVDA,
    -8.60%,
    Advanced Micro Devices 
    AMD,
    -7.17%
    and Applied Materials Inc.
    AMAT,
    -8.54%,
    were lower on Thursday.

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Business

The stock market is sliding because investors fear recession more than inflation

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A stock-market paradox, in which bad news about the economy is seen as good news for equities, may have run its course. If so, investors should expect bad news to be bad news for stocks heading into the new year — and there may be plenty of it.

But first, why would good news be bad news? Investors have spent 2022 largely focused on the Federal Reserve and its rapid series of large rate hikes aimed at bringing inflation to heel. Economic news pointing to slower growth and less fuel for inflation could serve to lift stocks on the idea that the Fed could begin to slow the pace or even begin entertaining future rate cuts.

Conversely, good news on the economy could be bad news for stocks.

So what’s changed? The past week saw a softer-than-expected November consumer-price index reading. While still running mighty hot, with prices rising more than 7% year over year, investors are increasingly confident that inflation likely peaked at a roughly four-decade high above 9% in June.

See: Why November’s CPI data are seen as a ‘game-changer’ for financial markets

But the Federal Reserve and other major central banks indicated they intend to keep lifting rates, albeit at a slower pace, into 2023 and likely keep them elevated longer than investors had anticipated. That’s stoking fears that a recession is becoming more likely.

Meanwhile, markets are behaving as if the worst of the inflation scare is in the rearview mirror, with recession fears now looming on the horizon, said Jim Baird, chief investment officer of Plante Moran Financial Advisors.

That sentiment was reinforced by manufacturing data Wednesday and a weaker-than-expected retail sales reading on Thursday, Baird said, in a phone interview.

Markets are “probably headed back to a period where bad news is bad news not because rates will be driving concerns for investors, but because earnings growth will falter,” Baird said.

A ‘reverse Tepper trade’

Keith Lerner, co-chief investment officer at Truist, argued that a mirror image of the backdrop that produced what became known as the “Tepper trade,” inspired by hedge-fund titan David Tepper in September 2010, may be forming.

Unfortunately, while Tepper’s prescient call was for a “win/win scenario.” the “reverse Tepper trade” is shaping up as a lose/lose proposition, Lerner said, in a Friday note.

Tepper’s argument was that the economy was either going to get better, which would be positive for stocks and asset prices. Or, the economy would weaken, with the Fed stepping in to support the market, which would also be positive for asset prices.

The current setup is one in which the economy is going to weaken, taming inflation but also denting corporate profits and challenging asset prices, Lerner said. Or, instead, the economy remains strong, along with inflation, with the Fed and other central banks continuing to tighten policy, and challenging asset prices.

“In either case, there’s a potential headwind for investors. To be fair, there is a third path, where inflation comes down, and the economy avoids recession, the so-called soft landing. It’s possible,” Lerner wrote, but noted the path to a soft landing looks increasingly narrow.

Recession jitters were on display Thursday, when November retail sales showed a 0.6% fall, exceeding forecasts for a 0.3% decline and the biggest drop in almost a year. Also, the Philadelphia Fed’s manufacturing index rose, but remained in negative territory, disappointing expectations, while the New York Fed’s Empire State index fell.

Read: Still a bear market: S&P 500 slump signals stocks never reached ‘escape velocity’

Stocks, which had posted moderate losses after the Fed a day earlier lifted interest rates by half a percentage point, tumbled sharply. Equities extended their decline Friday, with the S&P 500
SPX,
-1.11%
logging a 2.1% weekly loss, while the Dow Jones Industrial Average
DJIA,
-0.85%
shed 1.7% and the Nasdaq Composite
COMP,
-0.97%
dropped 2.7%.

“As we move into 2023, economic data will become more of an influence over stocks because the data will tell us the answer to a very important question: How bad will the economic slowdown get? That’s the key question as we begin the new year, because with the Fed on relative policy ‘auto pilot’ (more hikes to start 2023) the key now is growth, and the potential damage from slowing growth,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

Recession watch

No one can say with complete certainty that a recession will occur in 2023, but it seems there’s no question corporate earnings will come under pressure, and that will be a key driver for markets, said Plante Moran’s Baird. And that means earnings have the potential to be a significant source of volatility in the year ahead.

“If in 2022 the story was inflation and rates, for 2023 it’s going to be earnings and recession risk,” he said.

It’s no longer an environment that favors high-growth, high risk equities, while cyclical factors could be setting up nicely for value-oriented stocks and small caps, he said.

Truist’s Lerner said that until the weight of the evidence shifts, “we maintain our overweight in fixed income, where we are focused on high quality bonds, and a relative underweight in equities.”

Within equities, Truist favors the U.S., a value tilt, and sees “better opportunities below the market’s surface,” such as the equal-weighted S&P 500, a proxy for the average stock.

Highlights of the economic calendar for the week ahead include a revised look at third-quarter gross domestic product on Thursday, along with the November index of leading economic indicators. On Friday, November personal consumption and spending data, including the Fed’s preferred inflation gauge are set for release.

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Business

The Dow soars, Big Tech tumbles: What’s next for stocks as investors await Fed guidance

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The past week offered a tale of two markets, with gains for the Dow Jones Industrial Average putting the blue-chip gauge on track for its best October on record while Big Tech heavyweights suffered a shellacking that had market veterans recalling the dot-com bust in the early 2000s.

“You have a tug of war,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors LLC (RBA), in a phone interview.

For the technology sector, particularly the megacap names, earnings were a major drag on performance. For everything else, the market was short-term oversold at the same time optimism was building over expectations the Federal Reserve and other major global central banks will be less aggressive in tightening monetary policy in the future, he said.

Read: Market expectations start to shift in direction of slower pace of rate hikes by Fed

What’s telling is that the interest-rate sensitive tech sector would usually be expected to benefit from a moderation of expectations for tighter monetary policy, said Suzuki, who contends that tech stocks are likely in for a long period of underperformance versus their peers after leading the market higher over the last 12 years, a performance capped by soaring gains following the onset of COVID-19 pandemic in 2020.

RBA has been arguing that there was “a major bubble within major portions of the equity market for over a year now,” Suzuki said. “We think this is the process of the bubble deflating and we think there’s probably further to go.”

The Dow
DJIA,
+2.59%
surged nearly 830 points, or 2.6%, on Friday to end at a two-month high and log a weekly gain of more than 5%. The blue-chip gauge’s October gain was 14.4% through Friday, which would mark its strongest monthly gain since January 1976 and its biggest October rise on record if it holds through Monday’s close, according to Dow Jones Market Data.

While it was a tough week for many of Big Tech’s biggest beasts, the tech-heavy Nasdaq Composite
COMP,
-8.39%
and tech-related sectors bounced sharply on Friday. The tech-heavy Nasdaq swung to a weekly gain of more than 2%, while the S&P 500
SPX,
+2.46%
rose nearly 4% for the week.

Big Tech companies lost more than $255 billion in market capitalization in the past week. Apple Inc.
AAPL,
+7.56%
escaped the carnage, rallying Friday as investors appeared okay with a mixed earnings report. A parade of disappointing earnings sank shares of Facebook parent Meta Platforms Inc.
META,
+1.29%,
Google parent Alphabet Inc.
GOOG,
+4.30%

GOOGL,
+4.41%,
Amazon.com Inc.
AMZN,
-6.80%
and Microsoft
MSFT,
+4.02%.

Mark Hulbert: Technology stocks tumble — this is how you will know when to buy them again

Together, the five companies have lost a combined $3 trillion in market capitalization this year, according to Dow Jones Market Data.

Opinion: A $3 trillion loss: Big Tech’s horrible year is getting worse

Aggressive interest rate increases by the Fed and other major central banks have punished tech and other growth stocks the most this year, as their value is based on expectations for earnings and cash flow far into the future. The accompanying rise in yields on Treasurys, which are viewed as risk-free, raises the opportunity cost of holding riskier assets like stocks. And the further out those expected earnings stretch, the bigger the hit.

Excessive liquidity — a key ingredient in any bubble — has also contributed to tech weakness, said RBA’s Suzuki.

And now investors see an emerging risk to Big Tech earnings from an overall slowdown in economic growth, Suzuki said.

“A lot of people have the notion that these are secular growth stocks and therefore immune to the ups and downs of the overall economy — that’s not empirically true at all if you look at the history of profits for these stocks,” he said.

Tech’s outperformance during the COVID-inspired recession may have given investors a false impression, with the sector benefiting from unique circumstances that saw households and businesses become more reliant on technology at a time when incomes were surging due to fiscal stimulus from the government. In a typical slowdown, tech profits tend to be very economically sensitive, he said.

The Fed’s policy meeting will be the main event in the week ahead. While investors and economists overwhelmingly expect policy makers to deliver another supersize 75 basis point, or 0.75 percentage point, rate increase when the two-day gathering ends on Wednesday, expectations are mounting for Chairman Jerome Powell to indicate a smaller December may be on the table.

However, all three major indexes remain in bear markets, so the question for investors is whether the bounce this week will survive if Powell fails to signal a downshift in expectations for rate rises next week.

See: Another Fed jumbo rate hike is expected next week and then life gets difficult for Powell

Those expectations helped power the Dow’s big gains over the past week, alongside solid earnings from a number of components, including global economic bellwether Caterpillar Inc.
CAT,
+3.39%.

Overall, the Dow benefited because it’s “very tech-light, and it’s very heavy in energy and industrials, and those have been the winners,” Art Hogan, chief market strategist at B. Riley Wealth Management told MarketWatch’s Joseph Adinolfi on Friday. “The Dow just has more of the winners embedded in it and that has been the secret to its success.”

Meanwhile, the outperformance of the Invesco S&P 500 Equal Weight ETF
RSP,
+2.08%,
up 5.5% over the week, versus the market-cap-weighted SPDR S&P 500 ETF Trust
SPY,
+2.38%,
underscored that while tech may be vulnerable to more declines, “traditional parts of the economy, including sectors that trade at a lower valuation, are proving resilient since the broad markets bounced nearly two weeks ago,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

“Stepping back, this market and the economy more broadly are starting to remind me of the 2000-2002 setup, where extreme tech weakness weighed on the major indices, but more traditional parts of the market and the economy performed better,” he wrote.

Suzuki said investors should remember that “bear markets always signal a change of leadership” and that means tech won’t be taking the reins when the next bull market begins.

“You can’t debate that we’ve already got a signal and the signal is telling up that next cycle not going to look anything like the last 12 years,” he said.

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Business

Stock-market investors brace for busiest week of earnings season. Here’s how it stacks up so far.

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So far, so good?

Stocks ended the first full week of the earnings season on a strong note Friday, pushing the Dow Jones Industrial Average
DJIA,
+2.47%,
S&P 500
SPX,
+2.37%
and Nasdaq Composite
COMP,
-0.81%
to their strongest weekly gains since June. It gets more hectic in the week ahead, with 165 S&P 500 companies, including 12 Dow components, due to report results, according to FactSet, making it the busiest week of the season.

The bar for earnings was set high last year as the global economy reopened from its pandemic-induced state. “Fast forward to this year, and earnings are facing tougher comparisons on a year-over-year basis. Add in the elevated risk of a recession, still hot inflation, and an aggressive Fed tightening cycle, and it is of little surprise that the sentiment surrounding the current 3Q22 earnings season is cautious,” said Larry Adam, chief investment officer for the private client group at Raymond James, in a Friday note.

“We have reason to believe the 3Q22 earnings season will be better than feared and could become a positive catalyst for equities just as the 2Q22 results were,” he wrote.

Read: Stocks are attempting a bounce as earnings season begins. Here’s what it will take for the gains to stick.

Better-than-feared earnings were credited with helping to fuel a stock-market rally from late June to early August, with equities bouncing back sharply from what were then 2020 lows before succumbing to fresh rounds of selling that, by the end of September, took the S&P 500 to its lowest close since November 2020.

While earnings weren’t the only factor in the past week’s gains, they probably didn’t hurt.

The number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises increased over the past week, noted John Butters, senior earnings analyst at FactSet, in a Friday note.

Even with that improvement, however, earnings beats are still running below long-term averages.

Through Friday, 20% of the companies in the S&P 500 had reported third-quarter results. Of these companies, 72% reported actual earnings per share, or EPS, above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%, Butters said. In aggregate, companies are reporting earnings that are 2.3% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%.

Meanwhile, the blended-earnings growth rate, which combines actual results for companies that have reported with estimated results for companies that have yet to report, rose to 1.5% compared with 1.3% at the end of last week, but it was still below the estimated earnings growth rate at the end of the quarter at 2.8%, he said. And both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since the third quarter of 2020, according to Butters.

The blended-revenue growth rate for the third quarter was 8.5%, compared with a revenue growth rate of 8.4% last week and a revenue growth rate of 8.7% at the end of the third quarter.

Next week’s lineup accounts for over 30% of the S&P 500’s market capitalization, Adam said. And with the tech sector accounting for around 20% of the index’s earnings, reports from Visa Inc.
V,
+1.68%,
Google parent Alphabet Inc.
GOOG,
+0.94%

GOOGL,
+1.16%,
Microsoft Corp.
MSFT,
+2.53%,
Amazon.com Inc.
AMZN,
+3.53%
and Apple Inc.
AAPL,
+2.71%
will be closely watched.

Away from the backward-looking numbers, guidance from executives on the path ahead will be crucial against a backdrop of recession fears, Adam wrote, noting that so far guidance has remained resilient, with the net percentage of companies raising rather than lowering their outlook remaining positive.

“For example, the ‘Summer of Revenge Travel’ was known to benefit the airlines, but commentary from United
UAL,
+3.56%,
American
AAL,
+1.86%
and Delta Airlines
DAL,
+1.34%
suggests demand remains strong for the months ahead and into 2023. Ultimately, the broader based and better the forward guidance, the higher the confidence in our $215 S&P 500 earnings target for 2023,” Adam said.

The soaring U.S. dollar
DXY,
-0.89%,
which remains not far off a two-decade high set at the end of last month, also remains a concern.

See: How the strong dollar can affect your financial health

“While the degree of the impact depends on the blend of costs versus sales overseas and how much of the currency risk is hedged, a stronger dollar typically impairs earnings,” Adam wrote.

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U.S. stocks struggling to make ‘crazy’ bounce-back rally stick as earnings season gets under way

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U.S. stocks saw early gains fizzle Friday, with the market turning south after attempting to build on a bounce in the previous session that marked what’s been called one of the craziest market days in history.

Stocks turned lower after a closely watched survey showed consumer inflation expectations were on the rise, while investors were also weighing a round of results from big Wall Street banks as earnings reporting season gets under way.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.80%
    fell 223 points, or 0.7%, to 29,815, after rising 390 points at its session high.
  • The S&P 500
    SPX,
    -1.67%
    was down 58 points, or 1.6%, at 3,612.
  • The Nasdaq Composite declined 227 points, or 2.1%, to 10,422.

On Thursday, the Dow erased a plunge of nearly 550 points to end 828 points higher, while the S&P 500 bounced back from a loss of more than 2% to end 2.6% higher, and the Nasdaq Composite jumped 2.2%.

The Dow’s 2.8% rise was the largest one-day gain since Nov. 9, 2020.

See: Why stocks scored a historic bounce after another hot inflation report

What’s driving markets

Gains early Friday gave way to losses after the University of Michigan’s consumer sentiment survey showed expectations for inflation over the next year rose to 5.1% from September’s one-year low of 4.7%, while expectations for inflation over the next 5 years ticked up to 2.9% from 2.7% last month.

“The uptick in inflation expectations probably is a response to the increase in gas prices in recent weeks, in which case it won’t continue,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note, observing that preliminary readings tend to see big revisions.

“Still, on the heels of the September inflation data this rebound — reversing the drop last month — does not look good, given how closely policy makers appear to track the measure,” Shepherdson said.

The survey’s gauge of consumer sentiment rose to 59.8 in October from 58.6. Economists were expecting a reading of 59, according to a Wall Street Journal poll.

Data Friday also showed U.S. retail sales were unchanged in September, coming in below forecasts for a 0.3% rise. Excluding autos, sales rose 0.3%.

Analysts cited a number of factors to explain the huge rise in stocks on Thursday, which came after equities initially tanked following a hotter-than-expected September consumer-price index reading.

Factors behind the bounce included technical and positioning considerations after a steep selloff that had seen the S&P 500 index tumble for six sessions in a row to end Wednesday at its lowest since November 2020.

“Among the most frequent explanations is that the most pessimistic of all possible scenarios were built into prices: a 75-point rate hike at the next two meetings,” said Alex Kuptsikevich, senior market analyst at FxPro, in a note. “After this, market participants turned their attention to substantial discounts to prices from their highs with a relatively healthy economy that continues to create jobs and raise wages,”

But caution still prevailed on Friday.

“Despite October’s notoriety as a ‘bear market killer’ and an auspicious intraday move, investors should maintain a certain degree of caution. A real change in trend requires a shift in fundamentals. And those changes are still not easy to identify,” Kuptsikevich said.

Rick Rieder, the chief investment officer for fixed income at BlackRock, told MarketWatch’s Christine Idzelis that Thursday’s gyrations marked one of the “craziest” days in market history, coming after data showing U.S. September inflation running at a hotter-than-expected pace.

“One of the largest intraday reversals in recent memory off a closely watched CPI print underscores the oversold condition and sentiment extreme in this market. The vulnerability wasn’t in the number, the vulnerability was in the positioning leading up to the number,” said Jeff deGraaf, founder of Renaissance Macro Research, in a Friday note.

BlackRock’s Rieder advised investors to consider parking their money in short-term bonds, a point recently echoed by hedge-fund legend Ray Dalio.

Shares of JPMorgan Chase & Co.
JPM,
+3.39%
were up 2.7% after the bank and Dow component beat Wall Street targets for earnings and revenue.

Analysts were also weighing results from Wells Fargo & Co.
WFC,
+3.52%
and Morgan Stanley
MS,
-4.25%,
and Citigroup Inc.
C,
+1.43%.

See: JPMorgan profit falls but beats estimates while Wells Fargo misses

Investors were also monitoring developments in the U.K., where Prime Minister Liz Truss fired Kwasi Kwarteng from his role as chancellor of the exchequer. Yields on U.K. government bonds spiked after Kwarteng presented a budget plan that included large tax cuts in late September, sparking a crisis that required the Bank of England to step in with an emergency buying program.

Read: Why Kwasi Kwarteng could not survive the battle with the Bank of England

U.K. bond yields initially dropped on Friday on indications many of the planned tax cuts would be reversed. But they later rose after Truss only reversed corporate tax cuts.

Also see: Larry Summers says U.K. debt market stress could be the ‘tremor’ signaling global economic ‘earthquake’

The Federal Reserve needs to continue raising interest rates but should be careful about the pace of these moves, Kansas City Fed President Esther George said on Friday.

Companies in focus
  • Wells Fargo
    WFC,
    +3.52%
    shares rose 3.8% after the bank posted stronger-than-expected revenue for the third quarter, offsetting a profit miss.
  • Shares of Morgan Stanley
    MS,
    -4.25%
    fell 4.5% after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.
  • Citigroup
    C,
    +1.43%
    shares rose 1.9% after the bank topped Wall Street forecasts on earnings and revenue.
  • UnitedHealth Group Inc.
    UNH,
    +1.77%
    shares were up 1.6% after the Dow component and health insurer reported third-quarter profit and revenue that rose above expectations, and lifted its full-year outlook for a third-straight quarter.
  • Kroger Co.
    KR,
    -5.04%
    announced a $24.6 billion deal to buy Albertsons Cos. Inc.
    ACI,
    -7.39%.
    Under the terms of the merger agreement, Kroger will acquire all of the shares outstanding of Albertsons’ common and preferred stock for an estimated $34.10 per share. Kroger shares fell 4.9%, while Albertsons was off 7%. Shares of Albertsons jumped more than 11% Thursday on reports of a potential deal, while Kroger rose 2%.
  • Beyond Meat Inc.
    BYND,
    -6.02%
    shares fell 6.2% after the plant-based food company issued a revenue warning, announced a plan to cut about 200 workers and said it’s cutting other costs as it makes a strategic shift aimed at achieving positive cash flow operations.

Also see: Beyond Meat COO Douglas W. Ramsey is leaving the company after being suspended for allegedly biting a man’s nose

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Business

He nailed three big S&P 500 moves this year. Here’s where this strategist sees stocks headed next, with beaten down names to buy.

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A Wall Street hat trick may not be on the cards, with stocks in the red for Wednesday.

A two-day rally was never a guaranteed exit out of the bear woods anyway, as some say signs of a durable bottom are still missing.

Enter our call of the day, from the chief market technician at TheoTrade, Jeffrey Bierman, who has made a string of prescient calls on what has been a roller coaster year for the index thus far. He’s also a professor of finance at Loyola University Chicago and DePaul University.

Bierman, who uses quant and fundamental analysis to determine market direction, sees the S&P 500
SPX,
-1.62%
finishing the year between 4,000 and 4,200, maybe around 4,135. “Fourth-quarter seasonality favors bulls following a weak third quarter.  Not to mention most stocks are priced for no growth,” he told MarketWatch in a Monday interview.

In December 2021, he forecast the S&P 500 might see a 20% decline within six months, toward 3,900 — it hit 3,930 in early May. In June, he forecast a rally and recovery to 4,300 — the index hit 4,315 by mid-August.

Speaking to MarketWatch on Aug. 25, Bierman saw a retest of around 3,600 for the index, citing an often rough September for stocks. It closed out last month at a new 2022 low of 3,585.

“I think we’re going to end up for the quarter. [The market is] deeply oversold and some stocks are completely mispriced in terms of their valuation metrics,” said Bierman, who is looking squarely at retail and technology sectors.

“The valuations on half the chip stocks are trading below a multiple of seven. I’ve never seen that ever…but what that means is when the semiconductor sector comes back, the multiple expansion is gonna be like a volcanic eruption to the upside,” he said of the sector known for its boom/bust cycles.

For example, he owns Intel
INTC,
-2.53%,
which hit a five-year low on Friday. Eventually, the company that has invested $20 billion in a new U.S. plant will come roaring back alongside rivals like Advanced Micro
AMD,
-4.65%.
“People will look back on this and go ‘Oh, my God, I can’t believe Intel was at five times earnings,’ which is insanity for this stock.”

For the S&P 500 as a whole next twelve months price/earnings is currently 16.13 times, so Intel’s would be less than half of the broader index, according to FactSet

As for retail, he’s been looking at Urban Outfitters
URBN,
-1.06%,
Macy’s
M,
-1.94%
and Nordstrom
JWN,
-0.67%,
all places where millennials don’t shop, but the middle class does, with the all-important holiday shopping period dead ahead.

“There are 100,000 people being hired to work part time at these companies, and their margins are not coming down at all,” with no markdowns and decent sales, he said, noting those companies are being priced at a multiple of 5 times forward earnings.

“It means that you don’t think that Macy’s can put together for the Christmas quarter a comparative quarter, year over year of greater than 5%? If you don’t then don’t buy it, but I do,” said Bierman. “That’s why I’m willing to stick my neck out and buy these things. I bought Abercrombie & Fitch
ANF,
-3.78%
at 10 times earnings…I’ve never seen it that low.”

For those who aren’t comfortable picking stocks, he says they can still get exposure through exchange-traded funds, such as SPDR S&P Retail
XRT,
-2.58%
or the Technology Select Sector SPDR ETF
XLK,
-1.70%.

Bierman adds that investors need to be careful not to be overly concentrated in the top stocks, given “10 stocks accounted for 45% of the Nasdaq and the fact that 25% of the S&P almost accounted for about 50% of the S&P movement.”

“Everbody’s concentrated in 10 stocks that can still fall another 30% or 40%, like Apple and Microsoft. The idea of concentration risk is that everybody owns Apple, everybody owns Amazon,” he said.

And that could force the hand of passive and active managers heavily invested in those big names, driving a 10% drop for markets that “washes away all other stocks.”

The markets

Stocks
DJIA,
-1.21%

SPX,
-1.62%

COMP,
-2.19%
are in the red, and bond yields
TMUBMUSD10Y,
3.783%

TMUBMUSD02Y,
4.199%
are up, along with the dollar
DXYN,
.
Silver
SI00,
-5.00%
is retracing some of this week’s big gains, and bitcoin
BTCUSD,
-2.62%
is also off, trading at just over $20,000. Hong Kong stocks
HSI,
+5.90%
surged 6% in a catch-up move following a holiday. New Zealand’s central bank hiked rates a half point, the fifth increase in a row.

The buzz

Oil prices
CL.1,
-0.02%

BRN00,
+0.28%
are flat as OPEC+ reportedly agreed to cut oil production by 2 million barrels a day. Some say don’t be too impressed by any output reduction.

Amazon
AMZN,
-2.34%
will reportedly freeze corporate hires in its retail business for the remainder of 2022.

Mortgage applications fell to the lowest pace in 25 years in the latest week.

The ADP private-sector payrolls report showed 208,000 jobs added in September. The trade deficit narrowed, which should be good news for third-quarter GDP. The Institute for Supply Management’s services index is due at 10 a.m. Atlanta Fed President Raphael Bostic will also speak.

Expect the spotlight to stay on Twitter
TWTR,
-2.53%
after Tesla
TSLA,
-5.16%
CEO Elon Musk committed to the $44 billion deal. But will it feel like a win once he owns it?

Plus: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues

EU countries agreed to impose new sanctions on Russia after the illegal annexation of four Ukraine regions. Those moves will include an expected price cap on Russian oil.

South Korea’s missile fired in response to North Korea’s weapon launch over Japan, crashed and burned.

Best of the web

Russians fleeing Putin’s mobilization are finding haven in poor, remote countries.

Consumers are throwing away perfectly good food because of ‘best before’ labels.

The CEO of an election software company has been arrested on accusations of ID theft.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker Security name
TSLA,
-5.16% 		Tesla
GME,
-7.59% 		GameStop
AMC,
-9.56% 		AMC Entertainment
TWTR,
-2.53% 		Twitter
NIO,
-5.92% 		NIO
AAPL,
-1.77% 		Apple
APE,
-8.40% 		AMC Entertainment preferred shares
BBBY,
-8.52% 		Bed Bath & Beyond
AMZN,
-2.34% 		Amazon
DWAC,
-0.64% 		Digital World Acquisition Corp.
The chart

More market-bottom talk:


Twitter

Random reads

All about the investment manager who caught Yankees’ superstar Aaron Judge’s record-breaking home run.

An iPhone in a 162-year old painting? The internet is stumped.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton

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Business

Stocks crashing? No, but here’s why this bear market feels so painful — and what you can do about it.

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Hashtags about a stock-market crash may be trending on Twitter, but the selloff that has sent U.S. equities into a bear market has been relatively orderly, say market professionals. But it’s likely to get more volatile — and painful — before the market stabilizes.

It was indeed a white-knuckle ride for investors Friday as the Dow Jones Industrial Average
DJIA,
-1.62%
plunged more than 800 points and the S&P 500 index
SPX,
-1.72%
traded below its 2022 closing low from mid-June before trimming losses ahead of the bell. The Dow sank to its lowest close since November 2020, leaving it on the brink of joining the S&P 500 in a bear market.

Why is the stock market falling?

Rising interest rates are the main culprit. The Federal Reserve is raising its benchmark interest rate in historically big increments — and plans to keep raising them — as it attempts to pull inflation back to its 2% target. As a result, Treasury yields have soared. That means investors can earn more than in the past by parking money in government paper, raising the opportunity cost of investing in riskier assets like stocks, corporate bonds, commodities or real estate.

Historically low interest rates and ample liquidity provided by the Fed and other central banks in the wake of the 2008 financial crisis and the 2020 pandemic helped drive demand for riskier assets such as stocks.

That unwinding is part of the reason why the selloff, which isn’t limited to stocks, feels so harsh, said Michael Arone, chief investment strategist for the SPDR business at State Street Global Advisors.

“They’ve struggled with the idea that stocks are down, bonds are down, real estate is starting to suffer. From my viewpoint it’s the fact that interest rates are rising so rapidly, resulting in declines across the board and volatility across the board,” he said, in a phone interview.

How bad is it?

The S&P 500 index ended Friday down 23% from its record close of 4,796.56 hit on Jan. 3 this year.

That’s a hefty pullback, but it’s not out of the ordinary. In fact, it’s not even as bad as the typical bear-market retreat. Analysts at Wells Fargo studied 11 past S&P 500 bear markets since World War II and found that the downdrafts, on average, lasted 16 months and produced a negative 35.1% bear-market return.

A decline of 20% or more (a widely used definition of a bear market) has occurred in 9 of the 42 years going back to 1980, or about once every five years, said Brad McMillan, chief investment officer for Commonwealth Financial Network, in a note.

“Significant declines are a regular and recurring feature of the stock market,” he wrote. “In that context, this one is no different. And since it is no different, then like every other decline, we can reasonably expect the markets to bounce back at some point.”

What’s ahead?

Many market veterans are bracing for further volatility. The Fed and its chairman, Jerome Powell, signaled after its September meeting that policy makers intend to keep raising interest rates aggressively into next year and to not cut them until inflation has fallen. Powell has warned that getting inflation under control will be painful, requiring a period of below-trend economic growth and rising unemployment.

Many economists contend the Fed can’t whip inflation without sinking the economy into a recession. Powell has signaled that a harsh downturn can’t be ruled out.

“Until we get clarity on where the Fed is likely to end” its rate-hiking cycle, “I would expect to get more volatility,” Arone said.

Meanwhile, there may be more shoes to drop. Third-quarter corporate earnings reporting season, which gets under way next month, could provide another source of downside pressure on stock prices, analysts said.

“We’re of the view that 2023 earnings estimates have to continue to decline,” wrote Ryan Grabinski, investment strategist at Strategas, in a note. “We have our 2023 recession odds at about 50% right now, and in a recession, earnings decline by an average of around 30%. Even with some extreme scenarios—like the 2008 financial crisis when earnings fell 90% — the median decline is still 24%.”

The consensus 2023 earnings estimate has only come down 3.3% from its June highs, he said, “and we think those estimates will be revised lower, especially if the odds of a 2023 recession increase from here,” Grabinski wrote.

What to do?

Arone said sticking with high quality value stocks that pay dividends will help investors weather the storm, as they tend to do better during periods of volatility. Investors can also look to move closer to historical benchmark weightings, using the benefits of diversification to protect their portfolio while waiting for opportunities to put money to work in riskier parts of the market.

But investors need to think differently about their portfolios as the Fed moves from the era of easy money to a period of higher interest rates and as quantitative easing gives way to quantitative tightening, with the Fed shrinking its balance sheet.

“Investors need to pivot to thinking about what might benefit from tighter monetary policy,” such as value stocks, small-cap stocks and bonds with shorter maturities, he said.

How will it end?

Some market watchers argue that while investors have suffered, the sort of full-throttle capitulation that typically marks market bottoms has yet to materialize, though Friday’s selloff at times carried a whiff of panic.

The Fed’s aggressive interest rate rises have stirred market volatility, but haven’t caused a break in the credit markets or elsewhere that would give policy makers pause.

Meanwhile, the U.S. dollar remains on a rampage, soaring over the past week to multidecade highs versus major rivals in a move driven by the Fed’s policy stance and the dollar’s status as a safe place to park.

A break in the dollar’s relentless rally “would suggest to me that the tightening cycle and some of the fear — because the dollar is a haven — is starting to subside,” Arone said. “We’re not seeing that yet.”

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Business

Why stock-market bears are eying June lows after S&P 500 falls back below 3,900

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Goodbye, summer bounce.

The S&P 500 finished Friday below a crucial chart support level that’s served as a battleground in recent years, leading technical analysts to warn of a potential test of the stock market’s June lows.

“Over the last three years, the level on the [S&P 500] with the most amount of volume traded has been 3,900. It closed below that on Friday for the first time since July 18 which, in our view, opens the door down to the June lows” near 3,640, said Jonathan Krinsky, chief market technician at BTIG, in a Sunday note (see chart below).


BTIG

The S&P 500
SPX,
-0.72%
ended Friday at 3,873.33 — falling 0.7% in the session and 4.8% for the week for its lowest close since July 18. That left the index up 5.7% from its June 16 closing low of 3,666.77. The S&P 500 logged an intraday low for the selloff at 3,636.87 on June 17, according to FactSet.

The Dow Jones Industrial Average
DJIA,
-0.45%
fell 4.1% last week to end Friday at 30,822.42, while the Nasdaq Composite
COMP,
-0.90%
saw a 5.5% weekly drop to 11,448.40. Stock-index futures
ES00,
-0.19%

YM00,
-0.12%

NQ00,
-0.42%
were trading flat to slightly late Sunday.

A move back to the June lows likely won’t be a straight line, Krinsky wrote, but the lack so far of discernible “panic” in the Cboe Volatility Index
VIX,
+0.11%
futures curve and the lack of a drop to more extreme oversold conditions as measured by monthly relative strength index don’t bode well, he said.

Other analysts have noted the lack of a sharper rise in the spot VIX, often referred to as Wall Street’s “fear gauge.” The options-based VIX ended Friday at 26.30 after trading as high as 28.42, above its long-term average near 20 but well below panic levels often seen near market bottoms above 40.

Stocks had bounced back sharply from the June lows, which had seen the S&P 500 down 23.6% from its Jan. 3 record finish at 4,796.56. Krinsky and other chart watchers had noted the S&P 500 in August completed a more-than-50% retracement of its fall from the January high to the June low — a move that in the past had not been followed by a new low.

Krinsky at the time had warned, however, against chasing the bounce, writing on Aug. 11 that the “tactical risk/reward looks poor to us here.”

Michael Kramer, founder of Mott Capital Management, had warned in a note last week that a close below 3,900 would set up a test of support at 3,835, “where the next big gap to fill in the market rests.”

Stocks fell sharply last week after a Tuesday reading on the August consumer-price index showed inflation running hotter than expected. The data cemented expectations for the Federal Reserve to deliver another supersize 75-basis-point, or 0.75-percentage-point, rise in the fed-funds rate, with some traders and analysts penciling in a 100-basis-point hike when policy makers complete a two-day meeting on Wednesday.

Preview: The Fed is ready to tell us how much ‘pain’ the economy will suffer. It still won’t hint at recession though.

The market’s bounce off its June lows came as some investors had grown more confident in a Goldilocks scenario in which the Fed’s policy tightening would wring out inflation in relatively short order. For bulls, the hope was that the Fed would be able to “pivot” away from rate increases, averting a recession.

Stubborn inflation readings have left investors to raise expectations for where they think rates will top out, heightening fears of a recession or sharp slowdown. Aggressive tightening by other major central banks has stoked fears of a broad global slowdown.

See: Can the Fed tame inflation without crushing the stock market? What investors need to know.

Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

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Business

Can the Fed tame inflation without further crushing the stock market? What’s next for investors.

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The Federal Reserve isn’t trying to slam the stock market as it rapidly raises interest rates in its bid to slow inflation still running red hot — but investors need to be prepared for more pain and volatility because policy makers aren’t going to be cowed by a deepening selloff, investors and strategists said.

“I don’t think they’re necessarily trying to drive inflation down by destroying stock prices or bond prices, but it is having that effect.” said Tim Courtney, chief investment officer at Exencial Wealth Advisors, in an interview.

U.S. stocks fell sharply in the past week after hopes for a pronounced cooling in inflation were dashed by a hotter-than-expected August inflation reading. The data cemented expectations among fed-funds futures traders for a rate hike of at least 75 basis points when the Fed concludes its policy meeting on Sept. 21, with some traders and analysts looking for an increase of 100 basis points, or a full percentage point.

Preview: The Fed is ready to tell us how much ‘pain’ the economy will suffer. It still won’t hint at recession though.

The Dow Jones Industrial Average
DJIA,
-0.45%
logged a 4.1% weekly fall, while the S&P 500
SPX,
-0.72%
dropped 4.8% and the Nasdaq Composite
COMP,
-0.90%
suffered a 5.5% decline. The S&P 500 ended Friday below the 3,900 level viewed as an important area of technical support, with some chart watchers eyeing the potential for a test of the large-cap benchmark’s 2022 low at 3,666.77 set on June 16.

See: Stock-market bears seen keeping upper hand as S&P 500 drops below 3,900

A profit warning from global shipping giant and economic bellwether FedEx Corp.
FDX,
-21.40%
further stoked recession fears, contributing to stock-market losses on Friday.

Read: Why FedEx’s stock plunge is so bad for the whole stock market

Treasurys also fell, with yield on the 2-year Treasury note
TMUBMUSD02Y,
3.867%
soaring to a nearly 15-year high above 3.85% on expectations the Fed will continue pushing rates higher in coming months. Yields rise as prices fall.

Investors are operating in an environment where the central bank’s need to rein in stubborn inflation is widely seen having eliminated the notion of a figurative “Fed put” on the stock market.

The concept of a Fed put has been around since at least the October 1987 stock-market crash prompted the Alan Greenspan-led central bank to lower interest rates. An actual put option is a financial derivative that gives the holder the right but not the obligation to sell the underlying asset at a set level, known as the strike price, serving as an insurance policy against a market decline.

Some economists and analysts have even suggested the Fed should welcome or even aim for market losses, which could serve to tighten financial conditions as investors scale back spending.

Related: Do higher stock prices make it harder for the Fed to fight inflation? The short answer is ‘yes’

William Dudley, the former president of the New York Fed, argued earlier this year that the central bank won’t get a handle on inflation that’s running near a 40-year high unless they make investors suffer. “It’s hard to know how much the Federal Reserve will need to do to get inflation under control,” wrote Dudley in a Bloomberg column in April. “But one thing is certain: to be effective, it’ll have to inflict more losses on stock and bond investors than it has so far.”

Some market participants aren’t convinced. Aoifinn Devitt, chief investment officer at Moneta, said the Fed likely sees stock-market volatility as a byproduct of its efforts to tighten monetary policy, not an objective.

“They recognize that stocks can be collateral damage in a tightening cycle,” but that doesn’t mean that stocks “have to collapse,” Devitt said.

The Fed, however, is prepared to tolerate seeing markets decline and the economy slow and even tip into recession as it focuses on taming inflation, she said.

Recent: Fed’s Powell says bringing down inflation will cause pain to households and businesses in Jackson Hole speech

The Federal Reserve held the fed funds target rate at a range of 0% to 0.25% between 2008 and 2015, as it dealt with the financial crisis and its aftermath. The Fed also cut rates to near zero again in March 2020 in response to the COVID-19 pandemic. With a rock-bottom interest rate, the Dow
DJIA,
-0.45%
skyrocketed over 40%, while the large-cap index S&P 500
SPX,
-0.72%
jumped over 60% between March 2020 and December 2021, according to Dow Jones Market Data.

Investors got used to “the tailwind for over a decade with falling interest rates” while looking for the Fed to step in with its “put” should the going get rocky, said Courtney at Exencial Wealth Advisors.

“I think (now) the Fed message is ‘you’re not gonna get this tailwind anymore’,” Courtney told MarketWatch on Thursday. “I think markets can grow, but they’re gonna have to grow on their own because the markets are like a greenhouse where the temperatures have to be kept at a certain level all day and all night, and I think that’s the message that markets can and should grow on their own without the greenhouse effect.”

See: Opinion: The stock market’s trend is relentlessly bearish, especially after this week’s big daily declines

Meanwhile, the Fed’s aggressive stance means investors should be prepared for what may be a “few more daily stabs downward” that could eventually prove to be a “final big flush,” said Liz Young, head of investment strategy at SoFi, in a Thursday note.

“This may sound odd, but if that happens swiftly, meaning within the next couple months, that actually becomes the bull case in my view,” she said. “It could be a quick and painful drop, resulting in a renewed move higher later in the year that’s more durable, as inflation falls more notably.”

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