Am I very wrong The happiness machine is trying hard to sing my song Genesis

Equity markets remain remarkably resilient despite the headwinds of higher bond yields, flattening curves, rising oil prices, geopolitical risks, and the threat of slowing economic growth. Along with all that some technical signals also give traders cause for concern. The bears have plenty to feast upon, the bulls are feeding on scraps. Stocks markets are considered forward-looking animals, rise when the news looks the bleakest and fall when optimism abounds. The news is pretty bleak on all fronts at present.

Those who read this blog regularly will know I sometimes quote Keith Grindlay editor of Macro Economics. Keith is one of the few analysts I know who is almost always nonconsensual in his views, and independent, so always interesting to understand his outlook. Keith warned of the possible impact the Covid virus could have whilst many analysts around him were dismissing the threat. Keith also called out the Fed for not raising rates last year and rightly predicted that inflation was likely to be a greater threat in the coming year.

 Our conversation today quickly turned to what equity markets are currently trying to tell us. Whilst recognising all the risks we also looked what the possible reasons could be for the recovery. First straw to clutch to, analysts have been downgrading corporate earnings expectations for the S&P 500 for over a year now, that is changing. Oil prices are high but supposing some form of ceasefire and an agreement between Russia and Ukraine holds, with the speculative interest in oil prices one could see a quick return below 100 dollars a barrel. There are several signs, as we mentioned recently that the drivers of inflationary pressures are weakening. We also have to bear in mind that no one is predicting inflation rates that many have known in previous economic cycles or likewise interest rates. The Fed are likely to raise rates by 50 basis points at their next meeting, but they could turn more dovish if inflation does look like it has peaked. Stocks are not necessarily as expensive as everyone would have you believe, there are many tech names granted that still command undefendable ratings. the Russell 2000 index which does not include some of these heavyweights, trades at or around historic averages.  

With so much uncertainty the bears will have plenty to feast upon we thought it might be right to give the bulls at least one square meal.