MW 2023 has been bad for the bears. Here are 5 reasons why it's going to get even worse.
By Jamie Chisholm
Critical information for the U.S. trading day
Friday's session sees the end of the week, month and quarter. And what a quarter!
It contained bank failures that may deliver a credit crunch and worsen the expected economic downturn, thereby whacking corporate earnings; extreme uncertainty about the pace and trajectory of monetary policy that delivered volatility for the ages in government bonds; and increasingly taut geopolitical tensions.
The market's response? The S&P 500 is up 5.5%, the Nasdaq Composite has surged 14.8%.
The Puritans first banned bear baiting in England in the middle of the 17 century. Nearly 400 years later and it seems the blood sport remains rife on Wall Street.
Tom Lee, head of research at Fundstrat, delivers his mauling with a gentle smile and forceful stats.
"Many skeptics (anecdotally, the majority of our clients) are likely sniffing at these gains, as mere noise until the bear market re-asserts itself. But...we believe 1Q23 gains now solidifies that bears are now trapped," says Lee in his latest note.
The lows are in and stock market gains will continue in April, says Lee, and he gives five reasons why.
First, the banking blowup is more of a "clean up in aisle 7" than a full-blown crisis. It was a social media-generated bank run that has not spread from regional banks to a broader loss of confidence in the banking system, Lee reckons.
Second, traders are going to start perceiving monetary policy issues as more supportive. "The Fed made a 'dovish hike' in March and we expect incoming [softer] inflation data to support a further pause ."
Consumer inflation expectations of 3.8%, as observed in the latest University of Michigan survey, Lee notes, are now significantly below February's CPI reading for February of 6%. At 220 basis points, it's the largest negative spread since late 1982.
Next, some technicals. The S&P 500 has just recorded two successive positive quarters, a trend that over the past 50 years has not been seen in a bear market.
"Barring a big sell-off Friday (worse than -5.5%), two consecutive quarters of gains validate the start of a new bull market. This only solidifies our view that 10/12/22 was the bear market low and we are 6 months into a bull market," says Lee.
Fourth, Lee has mentioned before that certain trends tend to follow when the markets begins a year with a rally of more than 1.4% over the first five days when the previous year was negative. Simplifying, this tends to mean the advance accelerates over March and April.
"April 2023 should see stronger gains of around 4% this would push S&P 500 to greater than 4,200."
Finally, speculative positioning remains overly bearish. Traders are net short 202,000 E-mini S&P 500 futures contracts , nearly the same level as seen when the market hit its recent trough in October.
And Lee finishes with a spot of ursinal teasing. Pointing to a tweet from fund manager Michael Burry in which he admitted he had been wrong to say "sell" two months ago, Lee wryly observes: "Notably, some bears are beginning to exit the 'trap'."
Markets
S&P 500 futures were up just 7 points at 4087, while 10-year Treasury yields rose 1.8 basis points to 3.571%. The dollar index rose 0.2% to 102.38, pushing gold down 0.1% to $1,996 an ounce.
Try your hand at the Barron's crossword puzzle and sudoku games, now running daily along with a weekly digital jigsaw based on the week's cover story. To see all puzzles, click here.
The buzz
One of the Federal Reserve's favored inflation gauges, the PCE index, will be published at 8:30 a.m. Eastern. Economists expect the month-on-month core reading to fall from 0.6% in January to 0.4% last month.
Other U.S. economic data due on Friday include the Chicago Business Barometer for March, released at 9:45 a.m. and the University of Michigan final reading of March consumer sentiment at 10 a.m.
More Fed officials are taking the mic, too, with New York Fed President Williams talking at 3.05 p.m.; Fed Governor Cook speaking at 4.15 p.m.; and Fed Governor Waller making comments at 10 p.m.
Shares of Chicken Soup for the Soul Entertainment $(CSSE)$ plunged more than 25% after the streaming services group said it would sell stock and reported a loss for the fourth quarter.
China's services activity expanded in March at its fastest pace in 12 years, but manufacturers slowed, data released Friday showed.
Annual eurozone inflation fell from 8.5% in February to 6.9% in March, but core inflation, which strips out recent sharp declines in energy prices, rose from 5.6% to 5.7%, Eurostat said on Friday.
The U.K. economy grew 0.1% in the fourth quarter, data released on Friday showed, meaning Britain just managed to avoid a recession in 2022.
Best of the web
Jack Ma engineered Alibaba's breakup from overseas.
How safe are America's regional banks?
A $3 trillion threat to global financial markets looms in Japan.
Disney's feud with DeSantis adds another wrinkle.
The chart
Regular and timely data is very useful for investors. It's also pretty rare. Is the weekly jobless claims report going to have its day in the sun again? As concerns about inflation and Fed policy perhaps wane, worries about the depth of any economic downturn will build. The WJC's snapshot of the labor market every seven days should thus carry greater heft. And as the chart below from Kevin Cummins, chief U.S. economist at NatWest Markets, shows, the coming reports may not paint a pretty picture of the jobs market if the relationship to the Challengers survey stays tight.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla BBBY Bed Bath & Beyond GME GameStop AMC AMC Entertainment MULN Mullen Automotive BABA Alibaba ADR NIO NIO FRC $First Republic Bank(FRC-N)$ AAPL Apple NVDA Nvidia
Random reads
Doris the faking milk cow.
Get it on! The T. Rex had lips.
In the field no one can hear you scream.
Human Satan wins horn award.
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
-Jamie Chisholm
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 31, 2023 06:24 ET (10:24 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
Comments