Here’s why I’m Bearish

As a response to the other post I saw…

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1. Rates / currency / repo markets have priced in 6.5 rate hikes, not EQUITY or other risk asset markets. If you survey them, they still think 4 or less… NONE think 6 or 7.
   1. In rate hiking cycles, the Fed has ALWAYS followed the rate markets (so unless something changes, expect 6-7 hikes this yr)
2. Economic data are strong BUT it's decelerating – that's what matters. MARKETS DON'T WANT RATE HIKES INTO GROWTH SLOWDOWN! Remember 4Q18? What matters is if growth is accelerating or decelerating, not whether growth is positive.
   1. Omicron data will make it look like Jan was good but the key months to look at will be Mar-May. If you look at 4Q earnings, 2022 guidance and EPS revisions have been weak! 4Q earnings vs. consensus have been weaker than historical average.
   2. Also unemployment figures are one of the most, if not the most, lagging indicator… So the danger is if the Fed is looking at unemployment figures (which is their bigger mandate) to see if they should stop hiking – they might only change their stance when it's too late.
3. Consumer looks strong on AVERAGE but a more detailed look is very worrisome… The gap between haves and have-nots are getting a lot worse..
   1. Consumer savings are up but very concentrated for the rich. The have-nots barely have any to go around (~40% have <$1,000)
   2. Wage inflation is more pronounced at higher paying jobs (look at Atlanta Fed Wage Tracker by wage level). REAL WAGE is FALLING for the have-nots. The have-nots are really hurting right now and everybody knows!
4. Inflationary pressures likely won't ease that much. China's zero COVID policy is a major reason but I'm not sure if anybody is really investing into more capacity closer to home (certainly not the case in autos and low end semis where we see massive shortages – but curious to hear if others have different data points). If COVID has led to a structural shift of demand to higher consumption of goods vs. pre-COVID levels due to more permanent WFH (I heard ~50% of US employees can WFH, and I know I certainly will WFH a significant amount of the time), the supply chain is NOT READY yet and will continue to have bottlenecks (for example, I heard shipbuilders don't have labor supply cuz of COVID )
   1. We also don't know if there will be future mutations that could throw the picture worse on inflation, like Omicron did
   2. My guess is inflation likely peaks in Feb (base effects work both ways) but will stay elevated this year
   3. Generally on supply chain… yes, it's improving, but it's still CRAZY backed up. From what I've heard, we've gone from 4.5 std dev over on supply chain bottlenecks to like 4 std dev over is improving, but its still 4 std dev higher.. Curious to hear if people with boots on the ground are hearing something different
5. Inflation is the key political issue (see point 3)! More important than COVID or Ukraine or whatever. Biden is saying Powell is going to address them (with rate hikes). It's mid-term elections in 2022… so it's important
6. Don't even get me started on valuations. I know your growth stocks are down 50-80% bust just look at S&P valuations vs. historicals (it's not apples to apples but hard to say S&P is cheap)

So put that together, I don't really see what the upside for S&P / broader markets look like. I think you're not looking at some of these deep enough. So the main issue is if inflation is >3% in 2022 with massive growth slowdown and thus Fed wants to hike way more than equity markets are anticipating, can S&P go up? The Fed has said they want inflation to run hot to catch up to long run 2%, but guess what? ITS CAUGHT UP!