Market cycle on steroids leaves Wall Street guessing

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So, whatever doubts the 14-month stock rally raises, in Buckland’s eyes the current fundamentals are too strong to ignore. In fact, his team found that since 1976, there have not been years where revenues have increased by more than 25 percent and the market is down.

“We would buy any short-term declines in markets and cyclical stocks in particular,” Buckland wrote in a note Thursday (US time). “It is too early to give up the trade in recovery.”

Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company, says the business cycle – which is tied to market cycles – is also in its infancy.

“Business cycles in the past, they were a lot more erratic and a lot shorter than the last two or three we’ve had,” which means this one could be shorter, he said. “The question is, how fast does the cycle progress?”

Middle part

Morgan Stanley’s Mike Wilson says the market entered the middle part of the cycle faster than normal. And with that comes a change in leadership.

In recent weeks, the company’s chief U.S. equities strategist has started to move away from recommending early cycle beneficiaries and reopening beneficiaries – for example, he downgraded consumer discretionary. Instead, he recommends investors focus on reflation trading – including financials and materials – as well as reasonably priced growth stocks, which can be found in the healthcare industry and in the world. parts of communication services. The net effect is an uphill struggle between earnings and valuation, lukewarm returns over the next 12 months, and a likely 10-20 percent correction during that time if earnings stagnate.

Does the Wall Street bull market have more time to go?Credit:Bloomberg

“This recession and recovery are unique for a number of reasons, not least of which is its speed, down and up,” he wrote in a note captioned “ cycle brings more risk than reward. ” “The rapid recovery got us into a mid-cycle environment only a year later, and market insiders reflect that.”

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Meanwhile, Emily Roland, co-chief investment strategist at John Hancock Investment Management, says fundamentals and earnings growth start to matter more midway through the cycle phase, which she is starting to do. see now.

“We have to start thinking about the fact that the peak of stimulus and the peak of easing financial conditions are going to come into the rearview mirror as we move throughout the year here,” she said during the interview. ‘a telephone interview. “The fundamental support for this bull market is still in place here, but we think it’s going to come with a lot more jerks as we move into years two and three and into the middle part of this cycle.

Late stage

When StoneX’s Vincent Deluard considers how quickly the S&P 500 has recovered from the 2020 lows, he comes to one conclusion: The market is still in the same pre-pandemic cycle.

The massive increase in equity issuance at extraordinary valuations is “not something you would see fundamentally,” the global macroeconomic strategist said in a recent episode of Bloomberg’s “What Goes Up” podcast. At the same time, insiders cash in quickly. And, at the dawn of new bull markets, there is usually a lot of suspicion on the part of retail investors. It is certainly not happening at this time.

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Phil Toews, managing director of asset manager Toews Corp, agrees. He predicts that yields will continue to rise, which will be a challenge for equity markets. Additionally, valuations – which by some measures have passed the dot-com era – tend to be the best predictor of market movements, he said.

“I wouldn’t give him two years – I would give him maybe a year at most,” he said. “Looking at the economy and saying that the stock market will go up when we are at these valuations can also be incorrect and we can see a discrepancy between the price of financial assets and the economy.”

Bloomberg

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