Inflation risks still greater to the downside. The low response rate of JOLTS (31% down from 44% in 2021) argues JOLTS might be overstating labor market strength. Thus, risk/reward still favorable into YE.

We are continuing our visit with clients in Japan. The overall mood of investors remains cautious for understandable reasons. They don't want to fight the Fed and they remain concerned that stocks have not discounted the expected decline in 2023 earnings.

Earnings contraction remains a consensus bearish argument.The 2023 outlooks from Wall Street make this same argument as highlighted from BCA below, and similar views from others. Consensus sees stocks bottoming in 1Q2023 or so to 3,000-3,200 on contraction in earnings.But the consensus expected decline in earnings is not guaranteed. The USD rose ~20% in 2022 subtracting ~8% from EPS and this becomes a tailwind in 2023 if USD softens -- will it add +5% in 2023? And companies have been managing costs in 2022 as plunging CEO confidence triggered caution. We previously highlighted the plunge in CEO confidence is the fastest ever and like 2016 and 2018 triggered by monetary policy, not business conditions.And the overwhelming driver of Fed policy and market views is inflation. While investors think inflation remains sticky, the soft Oct CPI argues it is falling quickly. And in coming 5-7 days, we get two critical Nov inflation reports for PPI and CPI and we think those will be repeatably soft.Inflationary pressures are fadin...
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