Fantastic note again, I'm finding this the best resource to manage exposure. And sharing to all my friends. One question, given the high inflation levels can we expect potential upside in earnings compared to other recessions? Companies report nominal numbers which remain strong. GDP numbers are real which are pointing down, but nominal number are still strong and likely to roll over later.
first thanks for the feedback...there is no better compliment than sharing the work with your friends.
i often hear the "earnings are nominal" argument, but this strikes me as a false sense of complacency in difficult growth times. consider the EPS table during recession periods presented here...look at EPS peak/trough during the 70s-80s....the 15% drawdowns from highs don't look any different than another other period of recessionary growth...with or without inflation.
Thanks thats a great help. I'm in full agreement with your position regarding the earnings decline just trying to pre-mortem how it could go wrong. The 70s and 80s examples are strong.
Thorough and terrific analysis. I completely agree it is all about earnings, and while some active managers will try to anticipate the capitulation in the earnings outlook, the vast majority of investors will wait for this news to be front and center.
no surprise that market is now looking for earnings to weaken. i think we all agree on direction...but now face the more difficult to handicap severity of decline.
also negative revision cycles simply take time...its not like a fed rate hike or geopolitical event that has instantaneous impact...more of a process as corporates and analysts usually 'walk down' numbers rather then reset expectations upfront.
all told, lower earnings expectations and cutting growth expectations are a necessary phase of any big market correction (or bear market)...the final phase i think...its just that the final phase is also typically the longest in duration
Appreciate it Blonde. Do you think we will see S&P hitting level where it be fairly priced in recession, 3k? Great call on bonds but still kind of amazes me 3.50% on 10yr was the highest we could get in this cycle despite --- QT, aggressive fed, higher inflation, draining liquidity. etc --- One thing I still worry about is that market will briefly welcome the fact that CPI peaked but there will be a moment soon when inflation seen as 'sticky' hanging 4-5% which will trigger repricing in bonds again. What do you think? Thank you always Blonde, blessed to read your views on markets.
i do think we will see ~3k on SPX, but i'd guess the path to that is not going to be a straight line and a good portion of the negative surprise this cycle is behind us. at this point the majority seems to agree on direction of growth making harder to handicap severity and duration of decline the more important factors. all told, its still right to be defensive and meaningfully under risked but also the time to at least start thinking about what factors would we need to see for their to be a durable/tradable bottom.
people like to worry about the 1970s and how bad the decade was for risk. but they often don't tell you that there were a few >35% rallies in stocks that went along with the few >35% corrections. don't know about you...but i wouldn't want to sit around and be underexposed or short during a 50% rally in SPX.
As always, great content Mr. Blonde. I´m relatively new to your blog, but I´ve become a great fan of it. Insightful posts with awesome charts and data driven macro analysis... Thank you.
I do have one question, if you don´t mind. What do you think of going long QQQ vs DIA as a relative value play, probably goin double on the short side and 1x on the long side. Even though I agree with you that equities will most likely head lower, I believe QQQ has more macro risk discounted and could actually catch a bid relative to the Dow.
i agree, but prefer QQQ/IWM for that opinion. generally just don't like dow jones as a tradable instrument and i think you get more bang for buck being short small crap rather than big cap.
Always rather elegantly written and most importantly, based around rational analysis that frequently convinces in its determination to be evidenced based but not dogmatic. Refreshing. I often have to read it twice as am no expert, that’s not a bad thing but wherever possible keep explaining technical terms that you deploy, for some of us not from trading backgrounds.
Excellent as always, thank you. Whats the best way to calculate eps growth or revisions for the S&P 500 ex energy (or ex anything really). How are you handling weights? Or is there a shortcut/ticker for these series on factset or Bloomberg? I’ve been trying to come up with some similar tables & charts with factset or bbg data but am get bogged down in index/divisor math.
I know it shouldn’t be this hard, but any clarifying thoughts are much appreciated.
i calculate by subtracting energy net income from index net income to create an ex energy series over time. it’s pretty straightforward when using non per share data. i run the data using factset, but if you can figure out bloomberg’s cryptic estimate codes i’m sure it can be done there too
Ah thank you! I didn't realize you could get net income estimates for indices on factset. Or you're just compiling the individual company estimates & weighting them? Either way thank you, I'm in the right direction just by eliminating per share / divisor complications.
Ignore the above. I figured it out on factset, thanks! Didn't realize the fma data had those estimates. If I get it on BBG as well I'd be happy to share the template. Good luck out there.
What in the world is going on with Materials EPS estimates?
what is it that catches your eye?
The near term earnings contraction and the longer term upward revisions.
It’s like the opposite effect from every other sector.
https://stuckinthemiddle.substack.com/p/bummer-summer?r=1b1boy&s=r&utm_campaign=post&utm_medium=email
Fantastic note again, I'm finding this the best resource to manage exposure. And sharing to all my friends. One question, given the high inflation levels can we expect potential upside in earnings compared to other recessions? Companies report nominal numbers which remain strong. GDP numbers are real which are pointing down, but nominal number are still strong and likely to roll over later.
first thanks for the feedback...there is no better compliment than sharing the work with your friends.
i often hear the "earnings are nominal" argument, but this strikes me as a false sense of complacency in difficult growth times. consider the EPS table during recession periods presented here...look at EPS peak/trough during the 70s-80s....the 15% drawdowns from highs don't look any different than another other period of recessionary growth...with or without inflation.
https://stuckinthemiddle.substack.com/i/60674868/recession-risk-pricing
Thanks thats a great help. I'm in full agreement with your position regarding the earnings decline just trying to pre-mortem how it could go wrong. The 70s and 80s examples are strong.
Thanks for the update Mr B 👏
Thorough and terrific analysis. I completely agree it is all about earnings, and while some active managers will try to anticipate the capitulation in the earnings outlook, the vast majority of investors will wait for this news to be front and center.
thanks richard, really appreciate the feedback.
no surprise that market is now looking for earnings to weaken. i think we all agree on direction...but now face the more difficult to handicap severity of decline.
also negative revision cycles simply take time...its not like a fed rate hike or geopolitical event that has instantaneous impact...more of a process as corporates and analysts usually 'walk down' numbers rather then reset expectations upfront.
all told, lower earnings expectations and cutting growth expectations are a necessary phase of any big market correction (or bear market)...the final phase i think...its just that the final phase is also typically the longest in duration
Appreciate it Blonde. Do you think we will see S&P hitting level where it be fairly priced in recession, 3k? Great call on bonds but still kind of amazes me 3.50% on 10yr was the highest we could get in this cycle despite --- QT, aggressive fed, higher inflation, draining liquidity. etc --- One thing I still worry about is that market will briefly welcome the fact that CPI peaked but there will be a moment soon when inflation seen as 'sticky' hanging 4-5% which will trigger repricing in bonds again. What do you think? Thank you always Blonde, blessed to read your views on markets.
i do think we will see ~3k on SPX, but i'd guess the path to that is not going to be a straight line and a good portion of the negative surprise this cycle is behind us. at this point the majority seems to agree on direction of growth making harder to handicap severity and duration of decline the more important factors. all told, its still right to be defensive and meaningfully under risked but also the time to at least start thinking about what factors would we need to see for their to be a durable/tradable bottom.
people like to worry about the 1970s and how bad the decade was for risk. but they often don't tell you that there were a few >35% rallies in stocks that went along with the few >35% corrections. don't know about you...but i wouldn't want to sit around and be underexposed or short during a 50% rally in SPX.
you the best. Thanks.!
Thank you for another great article! It's a big loss for investors who have not subscribed to the free Stuck in the Middle.
As always, great content Mr. Blonde. I´m relatively new to your blog, but I´ve become a great fan of it. Insightful posts with awesome charts and data driven macro analysis... Thank you.
I do have one question, if you don´t mind. What do you think of going long QQQ vs DIA as a relative value play, probably goin double on the short side and 1x on the long side. Even though I agree with you that equities will most likely head lower, I believe QQQ has more macro risk discounted and could actually catch a bid relative to the Dow.
Thanks again for the great content
i agree, but prefer QQQ/IWM for that opinion. generally just don't like dow jones as a tradable instrument and i think you get more bang for buck being short small crap rather than big cap.
made reference here: https://stuckinthemiddle.substack.com/i/60674868/are-you-gonna-bark-all-day-little-doggie-or-are-you-gonna-bite
Thanks for the reply and the reference sir, I´ll read that article. Until next time!
Excellent work as always. You're the best follow I've found in the last several months. Keep it up!
thank you Alvin, really appreciate the compliment given what you have to choose from out there.
Excellent work Mr. Blonde. Thanks for this.
Always rather elegantly written and most importantly, based around rational analysis that frequently convinces in its determination to be evidenced based but not dogmatic. Refreshing. I often have to read it twice as am no expert, that’s not a bad thing but wherever possible keep explaining technical terms that you deploy, for some of us not from trading backgrounds.
thanks for reading kim, really appreciate the feedback
Thanks Mr. Blonde, great post and best wishes for a delightful and relaxed summer before we enter the autumn grinder.
Very helpful in these choppy times. To try and maintain a coherent strategic atc within which to operate helpful.
I just “discovered” you on Twitter and read the article. I am happy i did. Thanks 😊
welcome and hopefully you won’t end up more confused
Excellent information thanks for sharing.
Excellent as always, thank you. Whats the best way to calculate eps growth or revisions for the S&P 500 ex energy (or ex anything really). How are you handling weights? Or is there a shortcut/ticker for these series on factset or Bloomberg? I’ve been trying to come up with some similar tables & charts with factset or bbg data but am get bogged down in index/divisor math.
I know it shouldn’t be this hard, but any clarifying thoughts are much appreciated.
i calculate by subtracting energy net income from index net income to create an ex energy series over time. it’s pretty straightforward when using non per share data. i run the data using factset, but if you can figure out bloomberg’s cryptic estimate codes i’m sure it can be done there too
Ah thank you! I didn't realize you could get net income estimates for indices on factset. Or you're just compiling the individual company estimates & weighting them? Either way thank you, I'm in the right direction just by eliminating per share / divisor complications.
Ignore the above. I figured it out on factset, thanks! Didn't realize the fma data had those estimates. If I get it on BBG as well I'd be happy to share the template. Good luck out there.