Hopes of bulls are rising that the stock market could be seeing capitulation after Wall Street saw the third-best start to Q4 since 1930.
The major averages rallied sharply on Monday as bond yields (TBT) (TLT) (SHY) fell with the U.K. market crisis receding and weak ISM Manufacturing added some ammo to the case for a more dovish Fed. And buying support continues Tuesday, with S&P futures (SPX) (SPY), Nasdaq 100 futures (NDX:IND) (QQQ) and Dow futures (INDU) (DIA) up more than 1%.
Wall Street is more than six months into a bear market that has taken stocks down about 25%, raising the question of whether this is an inflection point.
Rock bottom: Investors have reached what could be considered peak pessimism on equities as other asset classes attract cash. The Goldman Sachs’ Sentiment Indicator came in negative for a near-record 31st-straight week, with strategists saying that points to the end of the There Is No Alternative, or TINA, trade. (See last week’s Wall Street Breakfast.) But extremely bad sentiment is seen as a contrarian bullish indicator.
The latest AAII Sentiment Survey showed bears, or those seeing stocks lower in six months, topping 60% for the second week in a row. “This poll has been around since 1987 and this is the first time it has ever happened,” Carson Group’s Ryan Detrick tweeted. “Not during the crash of ’87, tech bubble, financial crisis, or 100 year pandemic. Contrarian?”
BofA’s Bull & Bear Indicator remains at a max bearish nadir at 0.0 on deteriorating bond flows and credit technicals. But strategist Michael Hartnett warns that the contrarian buy signal for this indicator doesn’t work when a two-standard-deviation credit event is brewing as in 2008.
Don’t bet on a Fed flinch: “There were multiple factors driving (Monday’s) rally, but the main one was growing speculation that central banks could soon pivot towards a more dovish stance, particularly after the market turmoil over the last couple of weeks,” Deutsche Bank’s Jim Reid wrote. Morgan Stanley’s Mike Wilson says that the Fed would have to follow the Bank of England’s lead by ending QT and restarting QE for stocks to “rebound sustainably.”
“Markets are smelling blood in the water, but do they have enough evidence to price a policy turnaround? Not yet in our view,” ING said. “The BoE’s reluctance to buy gilts is a sign that it hasn’t given up the fight against inflation.” The BoE bought just 22M pounds in gilts Monday and rejected nearly 2B pounds in offers.
Later yesterday, “New York Fed President Williams noted it may take years to get inflation back to target given the current supply and demand imbalance in the economy, and that the Fed still had ‘a way to go’, invoking the 4.6% fed funds dot for the end of 2023, specifically,” Reid said. “Not exactly ‘pivot’ language from the core of the FOMC.”
“The next few days might deliver additional information on how fast economies are slowing down or – more realistically – how widespread financial stress is,” ING added. “But, for the moment, we fear the bond rally is running short of tangible evidence of a change in monetary policy.”
Any Fed tilt would hinge on a shift in labor market dynamics and September payrolls arrive on Friday. (Take the WSB Weekend Bite Twitter poll on how you see job growth.) (9 comments)
Ray Dalio, the founder of hedge fund Bridgewater Associates, has changed his view about cash as an asset, saying he no longer thinks it’s trash.
“As John Maynard Keynes is credited with saying: ‘When the facts change, I change my mind. What do you do, sir?’ Along these lines, the facts have changed and I’ve changed my mind about cash as an asset: I no longer think cash is trash,” he wrote in a Twitter post. Cash, meanwhile, saw inflows of $30.3B, while global equity funds experienced outflows of $7.8B for the week through Sept. 21. (32 comments)
Gold prices popped and silver surged to its strongest daily percentage gain in 20 months on Monday, helped by declines in the U.S. dollar and Treasury yields.
“The fundamental backdrop is getting less bearish” for gold, analysts at the Sevens Report said, but investors should expect the yellow metal to sink to new lows “if we do not see a peak in yields and the buck.” “You’re going to have to see a close back above $1,700 to get the (gold) bulls revived a little bit, and even that, really doesn’t change the technical posture a whole lot,” Kitco’s Jim Wyckoff said. (24 comments)
Rivian Automotive (RIVN) reported that it produced 7,363 vehicles at its manufacturing facility in Normal, Illinois in Q3 and delivered 6,584 vehicles during the quarter. The electric vehicle maker noted that the deliveries tally was in line with the company’s expectations. Rivian also said it is still on track to deliver 25K vehicles for the full year. (8 comments)
Tesla (TSLA) peeled off 8.6% on Monday to mark the biggest drop for the electric vehicle stock in four months. The selling pressure followed Tesla reporting Q3 deliveries below expectations.
Oppenheimer thinks the selloff may be overdone. Analyst Colin Rusch noted that TSLA continues to raise prices and that custom configurations have estimated delivery dates of late Q1 and Q2 of 2023. The Oppenheimer team anticipates manufacturing margins will remain robust for Tesla and Q4 deliveries could surprise to the upside. (148 comments)
Citi and Credit Suisse lowered year-end targets for the broader stock market Monday, with Citi bearish on 2023 and Credit Suisse looking for lower-than-average returns next year.
Citi cut its 2022 S&P 500 (SP500) (SPY) target to 4,000 from 4,200. Credit Suisse is cutting its target for 2022 to 3,850 from 4,300. For 2023, Citi expects the S&P to end lower than where it starts, down to 3,900. Credit Suisse set a target of 4,050 for the end of 2023 with returns “primarily driven by earnings growth.” (33 comments)
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