Some of my 'unfocused' shares & thoughts II

with lots of charts

Jul 07, 2022

I tend to bookmark all the interesting charts I find on Twitter and it’s time to sum up the findings from the last month or so . Many great minds are present on Fintwit, which makes Twitter one of the best content discovery platforms, allowing us to surround ourselves with smart people willing to share their knowledge and findings for free.

Wealth destruction and 60/40 portfolio

We have witnessed one of the biggest wealth drawdowns in the last 40 years. The pendulum went from one extreme to the other.

Ben Carlson @awealthofcs

We just lived through one of the worst 6 month periods for stocks and bonds in modern financial market history awealthofcommonsense.com/2022/07/the-wo…

SentimenTrader @sentimentrader

Stocks suck. Bonds are terrible. So it makes sense that the general U.S. consumer has never been more pessimistic about prospects for the two markets. Ever.

Recession

Recession probabilities are on the rise, and it has been all but confirmed in USA, with the latest GDPNow from Atlanta FED. How long and how deep is it going to be, if we get one?
As Druckenmiller said recently at Sohn conference:

Once inflation gets above 5%, it’s never been tamed without a recession

JE$US @WallStJesus

Data trends indicate recession risks have risen sharply ..

Hard landing is more likely than soft landing:

Daniel Baeza @dbaeza13

Fed has been in rate hiking cycles 13 times since 1955. Result: 10 of 13 ended in recession (hard landing). The 3 green arrows highlight the 3 times Fed rate hikes did not coincide with a recession. Conclusion: Buckle up

With forward estimates holding as high for so long…

...one has to be aware of the magnitude they could miss in case we get a proper recession.

Michael A. Arouet @MichaelAArouet

We have been told countless times recently that PE ratio has come back to historical average. Not that fast folks, Earnings consensus appears to be extremely optimistic 👇 Buckle up, it may get nasty. Chart @MikaelSarwe

Ian Harnett @IanRHarnett

In the last three recessions, analysts forecasts missed by -33%, -46% and -25%. The synchronized slowdown in Global PMIs suggests that a high probability of EPS being 20% below current forecasts in the coming year

Earnings expectations & current valuations

Jurrien Timmer @TimmerFidelity

What's next for equities? We remain in that awkward part of the cycle in which earnings growth is decelerating and P/E ratios are compressing. It’s not the stuff that bull markets are made of.

With margins as high as they are and with the pressure of higher wages and high inflation, it’s hard to believe we won’t see an EPS contraction.

David Marlin @Marlin_Capital

Recessions typically see a -15% Fwd EPS contraction. A similar decline in this cycle would take the S&P 500 forward earnings estimate from $239 to around $206. $SPY $QQQ $TSLA $AAPL $NVDA

MrBlonde @MrBlonde_macro

@MikeZaccardi IMO details matter here. ex energy its falling...both 2022 and 2023

We can assume history rhymes, so it’s good to know which sectors may get hit the hardest. Some of the sectors are already pressured by COVID related supply chain bottlenecks and some kind of relief is possible

Wasteland Capital @ecommerceshares

Despite some sectors keeping market earnings strong, the expectation at ATH just don’t make any sense. In a recession, earnings fall across all large sectors (with a few exceptions), and 19% for the S&P500 on average. This earnings contraction process hasn’t even started. 🤷‍♂️

Hopefully, with currently falling commodity prices, we’ll slowly forget about 1970s analogies.

Pendulum-like swings again with valuation measures YoY change:

Bespoke @bespokeinvest

Here's a pretty crazy chart. After seeing its biggest YoY expansion, we've just seen the biggest YoY contraction in the S&P's trailing 12-month P/E ratio...

The biggest hit has been taken by small-cap stocks, which are again in highly attractive territory:

…for instance, a record high number of stocks trading under 3x EV/EBIT in Russell 3000. Buy IWM 0.00%↑ and go away?

Tobias Carlisle @Greenbackd

Chart shows the number of stocks under 3 x EV / EBIT TTM in the Russell 3000. Currently 905. All-time high. h/t @ValueStockGeek

We’re also seeing a record percentage of companies trading below cash and short term investments

Valuations in general are not so ‘out of mind’ anymore

Even in high growth tech names, valuations are back to this secular bull’s range

Of course, valuations can always go lower, even more so if we see earnings contraction and multiples wants to catch up with the downward revisions.

Kantro @MichaelKantro

If rates are declining on the back of rising recession risks and rising credit spreads ... P/Es will DECLINE alongside lower treasury yields. Bond yields and P/Es have an inconsistent relationship across time. Credit spreads & P/Es don't. Shaded = lower yields & wider spreads.

WTCM @WTCM3

$SPY forward P/E multiple still in the "washout phase"; if/when the E outlook starts to deteriorate, could be next and potentially final leg down per @LizAnnSonders

As meester Jurrien Timmer says (definitely follow his work), it is important to determine if we’re still in a secular bull or a newly started secular bear market:

Jurrien Timmer @TimmerFidelity

Bear markets and recessions happen during all secular regimes, but during secular bull markets they tend to be shorter and are quicker to recover. 🧵

Jurrien Timmer @TimmerFidelity

The chart below shows all the cyclical bear markets within secular bear markets. Note how they all get worse from here. They go below zero and keep going. /3

Investor sentiment

Lance Roberts @LanceRoberts

There is too much #bearishness for a #bearmarket. The #media has never seen a bear market or recession in advance of one happening. We likely need a decent reversal to get the majority of investors back into the #bullish camp first. @RealInvAdvice @SoberLook

In short, sentiment is so low that it is screaming ‘a buy’:

Even the global fund managers are scared

Tiho Brkan @TihoBrkan

3/ Do you remember that classic line from Back To The Future: "Marty McFly, are you chicken?" 😂 It looks like global managers have chickened out from taking risks, as their exposure to risk sinks to the lowest since the Global Financial Crisis. The sentiment is in the gutter.

But, the truth is that positioning is a lot more bullish than what emotions say. Which one to trust?

According to JP Morgan, historically when UMich Consumer sentiment is extremely low, contrarian mindset is given an opportunity for some great returns in the next 12 months: