Why a Stocks Pullback Could Be Fast Approaching, According to Deutsche Bank

The organization that in the United States says if the economy is in recession or not seems to be asleep at work.

The National Bureau of Economic Research defines a recession as the period between a peak of economic activity and its subsequent depression or low point. There is no debate as to whether the NBER was correct in calling the peak of the last cycle in February 2020, but the bottom was, if you look at jobless claims, at the end of April, and at the latest in May if you look at employment. or personal income.

Employment and personal income are well above the minimum.

For markets, it is important when the economy is in expansion or recession. According to research by Deutsche Bank, growth, as measured by the Institute for Supply Management’s manufacturing index, typically peaks 10 to 11 months after a recession ends. That would be right now, if you follow the NBER’s definition of recession and not their stubborn refusal to say so.

Over the past 20 years, there has been a 73% correlation between the ongoing annual earnings of the S&P 500 SPX,
and the level of the ISM manufacturing index. That makes sense: you’d expect growth assets, like stocks, to correlate with measures of economic growth.

According to figures from Deutsche Bank, the S&P 500 sold around growth peaks at a median of 8.4%, and fell at a median of 5.9% when the ISM leveled off instead of falling. And the timing of these falls was early from the peak, usually two weeks later, lasting six weeks in total.

So when that peak hits it is important. And Deutsche Bank says it will arrive in the next three months, which isn’t a huge surprise given that the March reading was 64.8%, a 38-year high.

“As growth peaks over the next three months, we expect discretionary investors to reduce their positioning from extremely high levels, and we believe that retail investors are unlikely to buy the drop. Using historical experience as a guide argues for a decline of close to -6% if growth flattens near the peak, a greater retracement of -8.4% on an inverted V in growth, “said strategists led by Binky Chadha.

From there, however, stocks can pick up, they say. And the key in late summer and fall will be whether inflation holds up or accelerates, and how the Federal Reserve reacts.

Fed Minutes on Deck

The minutes of the Fed’s latest interest rate decision will be released at 2 pm ET. Markets will focus on any discussion of the timing of the bond buying rate slowdown, and how “further substantial progress” toward maximum employment and price stability targets is defined, the Fed’s condition for downsizing. gradual.

Jeff Bezos, CEO of Internet retail giant Amazon AMZN,
supports an increase in corporate taxes to pay for increased infrastructure spending, The Wall Street Journal reported, citing a company memo. JPMorgan Chase JPM,
President and CEO Jamie Dimon used his annual letter to advocate for stricter regulation of non-bank competitors, as he called for tax breaks to be removed and said higher taxes would be justified for the wealthy.

Cruise operators, including Carnival CCL,
+ 1.74%
and Norwegian Cruise Line Holdings NCLH,
+ 4.61%
extended Tuesday’s gains in pre-trade trading on optimism about when stocks may continue. Irish discount airline Ryanair Holdings RYAAY,
He said European travel restrictions will mean passenger traffic at the lower end of his guide.

Toshiba 6502 industrial conglomerate,
+ 18.28%
jumped into Tokyo trading after receiving a proposal to be bought by CVC Capital Partners in what would be one of the largest private equity deals of all time if completed. Singapore’s food delivery and payment service Grab is slated for a $ 35 billion valuation in a deal to be acquired by Altimeter Capital’s Altimeter Growth 1 AGC.
+ 4.35%
special purpose acquisition company, according to the Financial Times.

Some DoorDash DASH,
workers are trying to trick the algorithm into offering higher-priced jobs, according to Bloomberg News.

Register for the MarketWatch Investing in Crypto event.

10-year flexibility

The 10-year Treasury yield TMUBMUSD10Y,
it has fallen over the last week, reaching 1.66% on Wednesday.

US Stock Futures ES00,

they were little moved.

Humans no longer drive demand for microchips

Applied Materials AMAT Microchip Equipment Manufacturer,
on Tuesday he presented his vision for the next few years, targeting 2024 tax earnings of $ 8.50 per share from sales of $ 26.7 billion. While the market did not respond enthusiastically, one of its charts sets out demand for microchips, driven by algorithms, not human consumption.

Random readings

The owner of the world’s largest cryptocurrency exchange has no car or home.

Singing in the alien rain? Alien raindrops are like rain on Earth.

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