Morning Note: History Not Supporting the Bulls Right Here

Yesterday, in the following, Bloomberg offered up the history that explains our prevailing message herein:

"US Stock Bulls Ignore 100 Years of Recessions at Their Peril

• There’s been no US recession without a market slump since 1929
• S&P 500 is up more than 8% this year, reversing March tumble

By Jan-Patrick Barnert
April 19, 2023 at 4:33 AM PDT

The chorus of stock bulls predicting US equities will weather a recession has got it wrong, if history is any guide.

Optimists say stocks hit this cycle’s low in 2022 and an economic contraction this year or in early 2024 would only dent the rebound. The market backs them up: The S&P 500 Index has gained more than 8% so far this year, quickly reversing the slump after Silicon Valley Bank’s failure in March.

But a look at every US recession since 1929 suggests it’s a question of when, not if, the stock market takes a tumble. On no occasion in almost 100 years did equities avoid falling to a new trough after the economy entered a contraction. Markets only found a bottom nine months after a recession began, on average, data compiled by Bloomberg News show.

S&P 500 Index Never Bottoms Before a Recession

Data going back almost 100 years suggests more downside if economy falters

“Even a mild recession would warrant retesting the previous lows,” according to JPMorgan Chase & Co. strategist Marko Kolanovic. That means a drop of at least 15%, he wrote in a note dated April 17.

In contrast to the stock market, rates traders are flashing recession signals and the NY Fed’s probability model for a downturn has risen toward 60%. The consensus forecast is for two quarters of negative growth, data compiled by Bloomberg Intelligence show.

“We have never seen markets trough before the start of a recession,” Credit Suisse Group AG strategists, including Andrew Garthwaite, wrote in a note dated April 18. They put the probability of a US recession by the first quarter of 2024 at 80%."

Stay tuned... 

Asian stocks were mostly red overnight, with 11 of the 16 markets we track closing lower.

Europe's off this morning as well, with 15 of the 19 bourses we follow trading down as I type.

US equity averages are red to start the session: Dow down 151 points (0.43%), SP500 down 0.55%, SP500 Equal Weight down 0.54%, Nasdaq 100 down 0.49%, Nasdaq Comp down 0.60%, Russell 2000 down 0.78%.

The VIX sits at 16.90 up 2.67%.

Oil futures are down 2.12%, gold's up 0.54%, silver's up 0.20%, copper futures are down 0.53% and the ag complex (DBA) is down 0.43%.

The 10-year treasury is up (yield down) and the dollar is down 0.19%.

Among our 37 core positions (excluding options hedges, cash and money market funds), 13 -- led by TLT (long-term treasuries), AMD, GLD (gold), EZA (South African equities) and EWZ (Brazil equities) -- are in the green so far this morning... The losers are being led lower by AT&T, Albemarle, MP Materials, OIH (oil services stocks) and XLE (energy stocks).

Substitute "investing" for "the problem" in the following:

"If you come to it with a motive, the motive will dictate the answer to the problem... You are approaching it with a conclusion, with a premeditated intention... Whereas if you can free yourself from the motive, from the direction, from the desire to find an answer, then you come to it freely... A free mind meets the problem, then answers it."  --J. Krishnamurti

Have a great day!
Marty