In many ways Tom Lee has been the face of the Bull market-- he has been rather correct with just one boo boo. And he now says the Bear market is Over!
Hints of 1982 have one strategist saying the bear market is over: Morning Brief
Tuesday, August 2, 2022
When the closing bell rang last Friday, the
S&P 500 registered its best monthly gain since November 2020.
The apparent enthusiasm from investors in July
may be perplexing given the economic and earnings backdrop facing the markets.
But for Tom Lee, co-founder and head of research at Fundstrat, the market's recent rally makes perfect sense. Furthermore, Lee argues, history suggests that we may be at the beginning of a more forceful push higher into the end of 2022.
"The biggest takeaway for me on events of this week?" Lee asked in a note published on Friday, "Convincing and arguably decision evidence the 'bottom is in' — the 2022 bear market is over."
Last week, the Fed raising interest rates by
another 0.75%. GDP data that
showed a second-straight quarter of negative GDP growth. Recent housing data
showed a notable slowdown in arguably the economy's most important sector. And looking abroad, news broke that Russia
further cut the flow of gas to Germany as Europe prepares for a potentially frigid winter amid Russia's war in Ukraine.
And yet markets rose.
"When bad news doesn't take down markets," Lee added, "it is time for investors to assess."
This week began with data from FactSet out Monday showing analysts
making larger-than-normal cuts to third quarter estimates. In other words, analysts are more bearish than normal on corporate profits. And this aggregate downgrade to earnings expectations comes amid high-profile flops from the likes of
Meta Platforms (
META) and
Intel (
INTC) over the last week.
Fundstrat's optimism, however, extends beyond a view that hinges on the worst of the news flow being over for investors.
Over the last several weeks, Fundstrat has been arguing the market setup is similar to what investors were presented in August 1982 — a moment that preceded a fierce rally in equity markets
amid a pivot from the Fed.
In the summer of '82, the U.S. economy was in the throes of recession and then-Fed Chair Paul Volcker had not yet signaled whether the Fed would ease up in its campaign to slow inflation.
Chairman of the Federal Reserve Board, Paul Volcker, stands with hands on hips and smokes a cigar during a meeting in Washington, 1982. (Getty Images)- love this guy!
In October of that year,
Volcker signaled the Fed could temper efforts to slow inflation. "The forces are there that would push the economy toward recovery," the New York Times reported Volcker said in a speech. "I would think that the policy objective should be to sustain that recovery."
For investors, "sustain that recovery" kicked off a nearly 20-year bull market in stocks.
Two months before the pivot, markets sniffed out the Fed's plans — and in just four months erased all losses from a 22-month bear market that saw the S&P 500 fall 27%.
And this 40-year-old rally is why,
in Lee's view, the S&P 500 could be headed back above 4,800 and new record highs by the end of this year. Last week, Lee notes the bond market erased over 0.5% of expected interest rate increases from the Fed through next spring.
"The bond market made a serious 'dovish pivot' in pricing Fed funds into 2023," Lee said. "Is it any wonder that equity markets have found footing in July?"
Source: Fundstrat