To The Moon

The $NASDAQ(.IXIC)$ has rebounded more than 20% since its June low. Retail investors double down on tech stocks...

Is it a Bear Market Rebound Or New Bull Market? How institutions see August Market?  August and September will be the two worst months? What did you buy?

"Dead long" JPMorgan said that the peak of investors pessimism may have passed, but Goldman Sachs, Morgan Stanley and Bank of America do not think so.

Among Wall Street's top strategists, JPMorgan strategist Marko Kolanovic is one of the few bulls who predict U.S. stocks will rebound in the second half of the year.

Kolanovic, who was named the No. 1 equity strategist in the 2021 Institutional Investor Survey, expects U.S. stocks to rebound at attractive valuations as the peak of investor pessimism may have passed. Kolanovic wrote in an Aug. 1 report:

 “While the economic outlook remains challenging, we believe the risk-reward for equities looks increasingly attractive as the second half of the year unfolds. For now, bad data has been read as good, with Fed hawkish peaking, earnings Calls for a peak in rates and inflation are emerging.”

The short data suggests that Kolanovic's prediction of a sustained economic recovery may be correct, at least in the short term.

Citi strategists-Chris Montagu said that after last week's rally, most bears in the market are facing big losses, a massive short squeez causing stocks to rise.

Chris believes that most of the bad news from the weak economic data has been priced in by the market, and that U.S. stocks will "raise sharply" at the end of the year, which is in stark contrast to the forecasts of banks such as Goldman Sachs, Morgan Stanley and Bank of America.

Goldman's Cecilia Mariotti wrote in a note on Monday that markets are betting on a shift in the Fed's tightening stance, but he believes it's too early to ignore recession risks. Goldman Sachs said recession risks are not fully reflected in stocks even after this year's rout.

Mariotti said:

"Looking at the repricing of cyclical assets in the U.S. and Europe, we think the market may have been too complacent with the receding recession risk, prematurely anticipating a more accommodative monetary policy stance."

U.S. stocks have rallied sharply in the past July, with the $S&P 500(.SPX)$ posting its biggest monthly gain since November 2020, as more pessimistic data increased investor bets that the FED will slow the pace of interest rate hikes. Signs that U.S. corporate earnings were generally better than expected in the Q2 also boosted risk demand. But that rally now faces a key test - learn from history: August and September have historically been the two worst months for the U.S. benchmark. 

Bullish investors pointed to weaker-than-expected U.S. consumer confidence and a contraction in GDP in the Q2 as reasons the FED could ease monetary policy sooner. U.S. Treasury yields have fallen sharply recently, and a gauge of the dollar's strength fell to a one-month low.

Bloomberg Economics and fund manager Nuveen agreed with Goldman Sachs. They argue that the market may be more prone to straying now than at any time this year as traders pile bets that the Fed will start cutting rates in 2023. They cited gains in euro zone inflation and U.S. core price gauges as data support. The strategists wrote:

"We believe markets will be vulnerable to hawkish surprises if inflation continues to struggle to readjust and there is a surprise in economic growth -- for example, a slowdown in economic activity that leads to a longer-lasting, more severe downturn."

Mark Haefele, chief investment officer at UBS, said markets could remain volatile in the coming months as economic data remains largely uncertain. "We advise investors not to over-interpret July's slightly positive data," he said on Tuesday.

Meanwhile, Morgan Stanley and Bank of America expect a sharp cut in corporate earnings forecasts, which will add to the pressure on stocks in the coming months. One of Wall Street's biggest bears, Morgan Stanley's Wilson, said on Monday that even though earnings estimates have begun to fall, most corporate downgrades will only be felt in the fourth quarter.

Bank of America strategist Michael Hartnett also said last week that it was too early to prepare for a bull trade, with the S&P 500's "true low" below 3,600, about 13% below its latest close.

Given the presence of higher-quality companies in the S&P 500, Kolanovic said, the index's valuation looks higher than reasonable. He added that stock price-to-earnings ratios have contracted faster than is common in previous recessions.

Kolanovic believes that investors may reset expectations for FED policy and corporate earnings:

"Despite some disappointing data, risk markets are bouncing back, suggesting the bad news has been priced in."

While calls for an imminent U.S. recession have grown after U.S. gross domestic product contracted more than expected in the second quarter, JPMorgan strategists said they still expect the U.S. to avoid a contraction.

What're your thoughts on NASDAQ UP 20%: A New Bull Market In Tech? Are you long or hold some stocks?

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