From Inflation to Recession
In this week’s market update, we review the short cover rally that was ignited by last week’s inflation report and the risk we think comes with chasing stock prices higher. Specifically, we are going to review what we believe is the impact of higher policy rates on the economy and, most importantly, earnings. As we enter the final stretch of 2022, we believe the market is transitioning to phase three of the bear cycle, which may be characterized by recession and disinflation, which leads to DEFLATION IN CORPORATE EARNINGS.
- The bear market rally lasted a few days longer than expected
- We think the biggest up days often occur during bear markets, not bull markets
- We believe the continued yield curve flattening/inversion is a MASSIVE warning signal
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