The stock market seems to be moving past the headwinds of rate hikes and QT, focusing instead on an expected earnings recovery. This chart illustrates the point: The earnings yield is moving down while other measures of the cost of capital remain elevated.

The crystal ball on liquidity is fuzzy. How much of the increased T-Bill issuance will be absorbed by money market funds? What will be the balance between their T-Bills purchases and usage of the Reverse Repo Program (RRP)? If money market funds make less use of the RRP facility…

In addition to Fed policy on rates and the Fed’s System Open Market Account (where QE and QT happens), there are other liquidity dynamics at play. With the debt ceiling now passed, expectations are that the Treasury will be issuing a lot of T-Bills in the coming months, using…

For a new bull market to find traction, liquidity needs to improve. The Fed may possibly hike again in July. So, there is no relief yet from the rate side. Nevertheless, with estimates of R-Star now at 1.2% and TIPS break-evens between 2-2.5%, I estimate that the nominal neutral…

Time to TikTok

Valuations and earnings rarely move in harmony, as we can see in this monthly chart going all the way back to 1871. There are times when they go down together (really bad bear markets like 2001 and 2008), and sometimes they go up together (late 1990s and 2016). But most of the…

If we are in the infant stages of a new bull market, the brightening outlook for earnings is one reason why. The market always looks ahead (not always correctly) and if the earnings cycle is starting to improve in 2024, it makes sense that stocks are finding their footing now. In…

For calendar year 2023, the consensus estimate for earnings now is $218, and for 2024 it is $242. In other words, a modest decline in 2023 is expected to give way to a strong recovery in 2024. We shall see.

Conflicting signals: The improvement in earnings revisions is in stark contrast to the ongoing decline in the Purchasing Managers Survey (ISM). I’m not sure what to make of this, or how this divergence will be resolved.

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Eye on earnings: Here we see that the revisions index (upgrades less downgrades as a percentage of estimates) has flipped positive. While the level of EPS is still declining, the second and third derivatives (rate of change and revisions breadth) are improving.

Below the surface, the earnings outlook is improving, and more importantly, the breadth of estimate revisions is improving. The percentage of stocks in the S&P 500 with rising estimates from three months ago is 47%, up from 27%. With inflation still at 5% in the US, the quality…

The earnings picture is improving, or at least getting less bad. The downside progression of 2023 calendar estimates has flattened out. Just a few months ago, I figured that the 2023 consensus estimate was on its way to a 10% decline, but now we have gone from -5% to -4%.

Many people want to know if we’re in a new bull market. My take: “almost.” Yes, the S&P 500 is up 20% from the low but that’s an arbitrary measure that so far only applies to the cap-weighted index. To be in a confirmed bull market we need to see three things: a path to an…

Thanks for having me on, always a pleasure @SaraEisen @CarlQuintanilla

What could neuter a new bull market? A recession that knocks down earnings would be a big one, of course. But the more immediate concern is liquidity. With the debt ceiling finally passed, the Treasury is expected to issue at least $1.2 trillion in T-Bills, with half of that…

It’s interesting that the downward drift in earnings estimates for the upcoming quarters seems to be leveling off.

This should be good! Fortunately I’m not on @SquawkStreet until 11 am tomorrow @carlquintanilla @SaraEisen

We know from past market cycles that stocks tend to bottom well ahead of earnings, which by definition means that the first few quarters of a new bull market tend to be driven by multiple-expansion. We can see that below.

Valuations remain elevated relative to short-term yields (the Fed cycle) and real rates (also driven by the Fed cycle, among other things), but it looks like the market is pivoting away from the Fed, and on to expectations of an earnings recovery. Per the Discounted Cashflow…

If we assume that the October 13th low was the cycle low (an increasingly plausible scenario, given how much time has passed), the chart below shows a nice bottoming pattern for the S&P 500, but also how modest the progress has been for anything other than the mega-caps.

Many investors are waiting for recession, and that seems to be affecting everything except the top end of the market. As the leaderboard through May shows, the big growers stand alone (among equities, at least).

This market gives few clues where it’s headed. The cap-weighted S&P 500 looks like it is breaking out from a long base, while small caps languish near their lows. Maybe different sectors and styles are doing their own thing, leaving the headline indices in a useless range.