The Stock Market is about to FLIP

well folks are we experiencing A Tale of

Two Cities

are we going into a recession and is

inflation going to stay stickier than

anyone expects or is the recession

already over hmm that's an interesting

thought after all consider that in the

first quarter of 2022 real GDP was

negative 1.6 percent in the second

quarter of 2022 real GDP was negative

point six percent that sets up the

technical definition for a quote

technical recession two quarters of

negative GDP in a row now Democrats in

the white house will say nah that wasn't

actually a recession whereas other

people say oh how convenient for you to

change the definition of recession

facts are what they are we had negative

real GDP for two quarters in a row

whatever you want to call that fine

but there was now an argument being made

that the bottom is in knock on wood I'm

not saying it Bloomberg intelligence is

saying the bottom might be it Bloomberg

intelligence has something known as the

economic regime index and the economic

regime index suggests the worst economic

pain in this market

happened a few months ago and that

things may not actually be as bad as

they seem and maybe the stock market

realizes that and maybe that's why the

stock market is actually up 20

since October that's the S P 500 year

today the s p is up over seven percent

the NASDAQ is up over 20 some exchange

traded funds that are more Tech focused

sometimes pricing power focused are up

over 30 percent in some cases there's

some real opportunities that have

happened look at Bitcoin Bitcoin and

ethereum are up somewhere 80 since the

beginning of the year it's phenomenal

yet despite this the Bears are present

and so I want to talk about both the

Bears and the Bulls in this video the

Bears like to point to this chart and

say well wait a second here investors

have withdrawn cash from U.S equities

for 11 out of 15 weeks this year

that seems bearish in fact you could see

those withdrawal periods here you can

also see this massive tax loss

harvesting event here which is the Blue

Line showing you a massive decline in

the last week of December

excuse me all right so why is so much

Cath and cash being withdrawn from

equities and why then is the market

still slowly trending ah well some argue

that cash is being withdrawn because

clearly the earnings recession is afoot

Morgan Stanley's Mike Wilson will have

you know that the earnings recession is

coming companies are going to miss their

forecasts which are already low they're

going to miss on EPs and we're going to

go into a real S P 500 to climb we're

going back to 3200 we're going down 20

30 percent

why do they say that well in part

because you do have the S P 500 heavily

exposed to things like consumer staples

and Health Care stocks which in my

opinion as well as REITs which in my

opinion won't do so well in 2023 I think

they're likely to experience the real

earnings recession though lately they've

been propped up by some mag attack now

there's also the argument that hey well

people are taking this money out of the

stock market because you could get four

to five percent on money market funds

and Hell well if you've got so much

money that you can make in Money Market

funds if you can make four to five

percent why would you risk any of your

hard-earned cash in the stock market

just take a four to five percent

risk-free return and call it a day yes

maybe but remember a four to five

percent return actually is your payment

for opportunity right it is an

opportunity cost somebody who is

investing in the four to five percent

yields might potentially be missing out

on 20 30 40 50 returns in the stock

market however they might also avoid

another 20 downside in the event that

occurs right so this cash withdrawal

chart not that fantastic especially when

you couple it with the fear that it's

possible inflation will remain a lot

stickier than we expect in fact here's a

piece from the a Wall Street Journal

which talks about economists turning

more pessimistic on inflation and really

what they're talking about is how

economists have been surveying and all

of a sudden economists actually expect

inflation to end the year up at 3.53

versus 3.1 percent in January and the

number of economists thinking that rates

are going to get cut by the end of the

year has flip-flopped from a majority to

now only 39 percent of economists so

part of that is because a lot of

economists believe inflation will be

higher for longer and this is a pretty

typical bear argument that people make

this chart by the way shows you the dark

blue line on top which is uh the April

forecast for inflation and the light

blue line being the January forecast I

tried to throw in what I call the sort

of like wedge in Orange here and that's

really just to show you where uh

inflation might be higher see this

little extra difference here this is

what the market has to price in it's

higher for longer inflation right

and uh that's negative for the stock

market obviously or is it though and see

this is where even though consumer

expectations for inflation via the

consumer sentiment survey at the

University of Michigan just popped up to

its highest level since 2020. now a lot

of folks are saying hey maybe we are

going to have higher inflation for

longer maybe that does mean rates are

going to be higher for longer even

though all of that might be true the

Bloomberg intelligence economic regime

index suggests most of the pain

it's already over and when we align what

the S P 500 forward returns could be

based on what has happened since the

1970s

might be time to turn bullish now this

follows the economic thrust index which

we talked about just in the last two

days were the economic thrust index is

basically one of the most reliable

signals for just being past the bottom

and on an uptrend and that economic

thrust signal is saying we're here it's

time to buy baby now who knows but take

a look at this this is the economic

regime index and I'll explain it because

at first it looks a little funky so what

you want to do is you want to zoom in

over here to the right and what this

does is it measures the change in

momentum of things like manufacturing

industrial capacity consumerism

sentiment it puts all these data sets

together

and what you could see historically here

this chart goes all the way back to 1970

so then you've got the 1970s the mid 70s

recession the late 70s recession the

early 80s were session rights yada yada

what you can see is that this chart

usually bottoms at the end of a

recession look at that notice how it it

leaves the bottom at the end of a

recession it bounces along that bottom

in the recession but it the recession is

almost always over by the time it

flip-flops see that look at that that's

interesting so where are we right now oh

crap look at that we're out of the

potential bottom territory there so is

it then possible that when recession

designers is there I say that word the

uh Bureau of economic research ends up

deciding the National Bureau of economic

research the nber ends up deciding okay

yep we were officially in a recession

from q1 2022 to

q1 2023

or even Q4 2022 what they might end up

doing is they might end up drawing this

oops let's use a little bit of a smaller

pencil here imagine this how funky would

this be if the recession ended right

there

we drew this box there we go what if

that ends up being the recession right

what if 2022 was the recession and this

economic model just like it's been

correct in the past correctly correctly

signals that we have already passed the

recessionary pain and that any other

kind of

future hiccups are potentially already

priced in to the market now we're still

low right don't get me wrong we're still

substantially low here and we're still

in that sort of volatile area here but

it's somewhat interesting and remember

you never want to

rely on just one data set in my opinion

you want to look at the fundamentals of

companies I'm a big fan of looking for

High free cash flow companies companies

with high pricing power and companies

with high free cash flow and pricing

power that are also getting stimulus

checks I hate to say it but the

government is basically handing out

stimulus checks to some of the richest

companies in the world Taiwan

semiconductors Intel Tesla Nvidia AMD

and face

it's ridiculous

but as an investor I'm like well I'm not

gonna say no to the free money nobody

should that would be stupid but take a

look at this this is the economic regime

index for the past six months that is

it's a six-month moving average right

now moving average is going to be less

reactive to the day-to-day fluctuations

so you'll notice the bottom blue segment

is a lot lower or a lot smoother I

should say but what it shows is that

we've hit that white line on the bottom

that white line on the bottom let me

highlight that for you that white line

down here is really the bottom almost

the bottom here in 2008 we went past it

right so in this segment here we went a

little past it but typically this has

actually indicated a bottom hitting that

little white line in the 70s and the 80s

and the early 90s and look at what the

six month moving average just hit

it's interesting so uh what do S P 500

returns usually do now again I want to

just briefly caution when we talk about

these S P 500 returns briefly just want

to give a caution

that I'm not the biggest fan of the S P

500 right now that's just my opinion I

think if you go through the top 60

stocks in the S P 500 there are too many

of them that are exposed to commodity

Staples health care that in my opinion

it's just my opinion aren't actually

going to do as well as they potentially

could uh going forward so that's where

I'd rather be focusing my energy and

attention specifically on pricing power

style stocks a lot of those Champs tax

but but you've heard that all before

right so that's that's I don't want to

sound redundant here uh but what I do

want to focus on is is really this this

uh the S P 500 forward returns that

Bloomberg is projecting now who knows

this is just projections so we don't

know uh but Bloomberg's S P 500 forward

returns are the following

so after that index hits its bottom

Bloomberg estimates that the S P 500

historical average between 1970 to 2023

three months forward after this economic

index hits its bottom out of eight

recessions

it has only been negative once on a

three-month forward basis that's pretty

impressive those are good odds I mean

seven out of eight times this is

positive the S P 500 is actually

positive in a three month period in

addition to that if you look at six

months forward you're also looking at

being positive seven out of eight times

which is also quite impressive and then

if you look at the one year forward also

seven out of eight times you're positive

but not only are you positive seven out

of eight times look at the magnitude at

which you're positive this is what's

really impressive I mean you're looking

at in uh nineteen

80 right here 19 actually no this is

2009 and 2020. 2009 and 2020 you were

positive to the tune of about 40 in the

one year forward

uh you know the averages over here would

be closer to about seven percent average

up on a three month forward a little bit

more dicey on the sixth month which

somewhat potentially aligns with this

this fear that oh no we're gonna have

like a Q3 recession or whatever uh but

overall these signals are pretty bullish

despite the fact that their fears

inflation might remain a lot higher uh

Than People expect now the other uh

graph that I wanted to show you is uh is

the one that we've talked about

previously and it that's the kopak index

so if you wanted to see that as an index

that was potentially flashing uh an

inflection of okay here we go like this

is this is the sign to be up you could

Google that one yourself or you could

watch a video that I posted just a

couple days ago talking about the

Coppock index uh in fact I want to say I

posted that on the 14th or the 13th just

so you can have the reference to it it

was the 14th or the 13th and let's see

uh it was actually probably the 13th oh

yeah here it is I believe I called it

massive flip

uh coming to stocks yes that's where it

was massive flip coming to stocks you

could watch that video in detail if you

really want your like bullish tingleness

to trigger watch that if you're a bear

you probably don't want to watch this

because this cop box signal here

whatever signal is is indicating uh some

some bullishness that historically has

fired

almost always at the bottom it has

pre-fired I think once in the past

actually has no no I don't think this

one's ever pre-fired yeah look at this

and it's not trying to time the bottom

it it triggers just past the bottom uh

almost every single time it triggers

just past the bottom I think there was

another index that we looked at let me

see here uh the other index yeah this

was the other index we looked at this

was the thrust Index this one had a few

misfirings uh so there are a few times

the thrust index actually fired a little

too early but the uh car park was almost

always right and suggesting we were just

past the bottom so maybe the bottom is

in now to me that's pretty dang exciting

because obviously I believe in the Nike

Swoosh style recovery I think it's going

to be volatile but I agree I think the

worst is behind us it's gonna take a lot

of new Paul volcker style fear for us to

get back to the bottom for the bear

years sorry for the Bulls pretty excited

and I'm happy for y'all so we'll see

what happens over the next uh

six to 12 months here let's just say

pretty bullish check out stream yard by

the way met kevin.com

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