That’s OK, the S&P 500 SPX is already up 5.75% in 2023, helped by the belief that slowing economy and softening inflation will allow the Federal Reserve to be less aggressive in raising borrowing costs.
But stock bulls who hope to find signals the central bank will soon stop tightening policy may wish to think again. That’s the warning from Citi’s quantitative global macro strategist Alex Saunders, who says investors must brace for a shift in market responses. The chart below shows the mean returns in four regimes. The best regime, says Saunders, is with positive economic surprises, and a positive equity/surprise correlation, which happens 34% of the time.
Such a transition to a regime where bad news is bad news “could be the sign that the bear market rally is fading -– for example, the sell-off after weak retail sales numbers earlier this month”.“Additionally, a string of positive economic releases would also give us pause in equities, as the Fed could see this as a green light to tighten financial conditions further,” he says.
The buzz Intel INTC shares are down nearly 10% in premarket action after the chip maker late Thursday reported– a big fourth-quarter miss, and a gloomy forecast. The sell-off in shares of companies linked to Gautam Adani, Asia’s richest man, continued on Friday after hedge fund titan Bill Ackman lent his support to Hindenburg Research, the short seller who this week published a critical report into the Adani empire’s activities.