Market comment 2022

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The number of job openings jumped further into the astronomical zone, to a record 11.55 million (seasonally adjusted) at the end of March, up by 36% from a year ago. Compared to March 2019, job openings spiked by 57%; that’s 4.2 million more job openings in March 2022 than before the pandemic.

A Recession Might Just Eat Some of the 11.5 Million Job Openings, Labor Shortages, Other Shortages, and Not Create Much Unemployment | Wolf Street

The global streak of high inflation is far from over and aggressive monetary policy tightening will fall short in taming price pressures to mandated levels as broken supply chains are unlikely to mend anytime soon, Reuters polls showed.

Global inflation to stay stubbornly high as wrecked supply chains persist: Reuters poll | Reuters

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The SPDR S&P 500 ETF Trust (NYSE:SPY) recently hit its lowest level of 2022 this week despite overall first-quarter earnings numbers that are relatively solid. Unfortunately, Bank of America analyst Savita Subramanian said overall S&P 500 earnings numbers for the first quarter aren't as strong as they may seem at first glance, and the index is experiencing a "death by paper cuts." 

The Numbers: Subramanian said S&P 500 EPS is up 11% year-over-year, exceeding consensus estimates by about 6% on the quarter. However, she said guidance updates this quarter have been the worst since the COVID-19 pandemic hit in the second quarter of 2020. As a result, Subramanian said the S&P 500 is at a high risk of significantly missing full-year consensus ESP estimates of $251. Bank of America is projecting just $230 in 2022 S&P 500 EPS with a downside of around $200 if the U.S. economy falls into a recession. 

Hidden Weakness: Subramanian said this underlying earnings guidance weakness has been masked by the booming energy sector. Overall 2022 S&P 500 EPS estimates are up since the beginning of 2022, led by the energy sector. Consensus 2022 energy sector EPS estimates are up 62% year-to-date, while consensus EPS estimates for the rest of the S&P 500 are down 0.5%.

Why Q1 Earnings Season Has Been 'Death By Paper Cuts' | Docoh

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Not that anyone has seen what 2022 had in store — the worst bond market performance in decades, a surge in commodities, a war in Ukraine — but Morgan Stanley’s outlook was closer to the mark than most, certainly better than the other Wall Street firm with Morgan in its name. It came into the year flagging mid-to-late cycle challenges, warning about high valuations, tightening policy and inflation higher than most are used to. All of that sounds about right. From the archive: Here’s what Wall Street analysts see for the U.S. stock market in 2022 

The bank is still banging that drum. “With strong labor markets, tightening policy, a flat curve, and our economists forecasting slower global growth with a downside skew, we think that a ‘late-cycle’ flavor to the market continues, supporting light overall positioning and a premium for portfolio defense/diversification,” say the strategists led by Andrew Sheets. In practice, that means Morgan Stanley expects the S&P 500 SPX, +0.25% to keep falling, to 3,900 by the second quarter of 2023, though it’s more optimistic elsewhere. Its top trade recommendation is being long Japanese equities, as the firm says recent currency weakness should boost Japanese corporate earnings.

Morgan Stanley's done better than most forecasting markets during this turbulent year. Here's what it says is coming next. - MarketWatch

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Big stock market drawdowns like the current one often end with a selling frenzy, called capitulation. So, you’ll want know how to spot capitulation — a sign that it’s safer to start buying. To find out, I recently checked with several of my favorite market strategists and technicians. They offer the following indicators. In fairness to them, they all look for a combination of confirming signals. “It’s a basket of things, but when they start to pile up, it gives me more confidence,” says Larry McDonald of the Bear Traps Report. In the interest of brevity, however, I cite only one or two signals each.

Opinion: When is it safe to start buying stocks again? We're not there yet, but these are the six signs to look for - MarketWatch

1. Negativity among investors
   
2. Peak VIX
   
3. Spike in put/call ratio
   
4. Spike in the number of stocks getting trashed
   
5. High-volume blow-off
   
6. Big decline in margin debt
   

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Not really going to plan..



And it's starting to sink in:

Russian military bloggers continued to post analysis that is skeptical of Russian efforts and increasingly in-line with Western assessments of Russian military failures in Ukraine. One such blogger, Igor Strelkov, claimed that the Russian offensive to take Donbas has ultimately failed and that “not a single large settlement “has been liberated.[1] Strelkov even noted that the capture of Rubizhne is relatively insignificant because it happened before the new offensive in Donbas had begun. Strelkov stated that Russian forces are unlikely to liberate Donbas by the summer and that Ukrainian troops will hold their positions around Donetsk City. Strelkov notably claimed that Russian failures thus far have not surprised him because the intent of Russian command has been so evident throughout the operation that Ukrainian troops are aware of exactly how to best respond and warns that Russian troops are fighting to the point of exhaustion under “rules proposed by the enemy.” The continued disenchantment of pro-Russian milbloggers with the Russian war effort may fuel dissatisfaction in Russia itself, especially if Moscow continues to press recruitment and conscription efforts that send poorly-trained cannon-fodder to the front lines.

Russian Offensive Campaign Assessment, May 16 | Institute for the Study of War

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U.S.-listed shares of Chinese technology companies rose, driven by expectations of China easing its regulatory crackdown on the country's internet companies, while falling COVID-19 cases raised hopes of a boost to economic activity. Chinese Vice-Premier Liu He is scheduled to address tech executives at a meeting convened by the country's top political consultative body on Tuesday to promote the development of its digital economy, according to sources.

 Chinese internet stocks rise on hopes of easing regulation | MarketScreener

Here’s a list of countries that have banned food exports in the months after the Russia-Ukraine war started, according to a live tracker developed by the International Food Policy Research Institute.

 Countries banning food exports amid rising prices, inflation

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Minerd said that he believed the Fed will continue to raise rates “until they see a clear breaking of the inflation trend” and that “they are wiling to go above a neutral rate,” referring to a level of interest rates that neither stimulates nor restrains the economy. Earlier this month, the Fed’s rate-setting committee raised the benchmark federal funds rate to a target ranging between 0.75% and 1%. It is expected to raise rates by at least 50 basis points at its June 14-15 gathering, as U.S. inflation stood at an 8.3% annual rate in April, according to the Labor Department, well above the Fed’s target rate of 2%. The Guggenheim executive said that a May 13 gathering of former Federal Reserve policy makers and prominent economists, including John Taylor, John Cochrane and Michael D. Bordo, hosted by the Hoover Institution just after the Fed’s May meeting, caused him to take a more bearish stance on equities and the market as a whole.

Also read: Is it now or never for a stock rally? Fund managers’ cash pile is the biggest since 2001, says Bank of America.

He said attendees at that Hoover conference estimated that the Fed would need to take interest rates to 3.5% to 8% to hit neutral, which suggested to him that the central bank might need to dial up rates until something in the economy or markets, or both, breaks. The Fed appears to have “very little concern about the continuation of what I think now is a bear market,” Minerd said. If that is the case, “we are probably going to have a pretty severe selloff,” he said. The investor said a severe downturn could give central bankers some pause, but any respite from hikes might not come until a lot of damage is already done.

A ‘summer of pain’ for stocks? Nasdaq Composite could plunge 75% from peak, and S&P 500 skid 45% from top, warns Guggenheim’s Scott Minerd - MarketWatch

• The Fed might not be held back by stock market woes, but a rapid economic slowdown might very well do the trick. It should. Monetarists are already screaming that the central banks risk overdoing the tightening as monetary aggregates are already slowing down a lot.
  

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The war is devastating lives and roiling markets. Here we track the disruptions that seem likely to shape lives and livelihoods, beyond the immediate crisis.

 War in Ukraine: Twelve disruptions changing the world | McKinsey

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Getting knocked down along with tech stocks this year have been the smaller companies, which are pricing in a “nasty recession and decline worse than many bear markets,” notes a team of Jefferies strategists led by Steven G. DeSanctis... 

In our call of the day, the Jefferies team argues that this hard-hit group of stocks has been unduly punished by a “baby with the bathwater” reaction by investors. And the team offers a dozen or more stocks it thinks could be poised for a bounce.

That isn’t all sectors of course, and Jefferies is steering clear of secular growth, as estimates keep falling. Cyclicals are a different story. Exiting a bear market, “these stocks hang with growth, they continue to see better revision trends, and ’22’s estimated growth now stands at over 18%,” said DeSanctis. 

In a 'baby with the bathwater' market, here are a dozen unfairly punished stocks, ripe for a bounce - MarketWatch