The August 1982 moment: bear market “bottom” before Fed pivots – if true, new highs coming sooner than most expect

The biggest takeaway for me on events of this week? Convincing and arguably decisive evidence the “bottom is in” — the 2022 bear market is over.

  • this was a big data week, with FOMC, 2Q GDP, housing and PCE (today)
  • a huge miss on GDP, yet markets rally
  • Fed raises +75bp and says focus remains on inflation, yet markets rally
  • Russia turns down gas flow on Nord Stream I, yet markets rally

When bad news doesn’t take down markets, it is time for investors to assess.

  • Is this a trap driven by short covering?
  • Most investors take this view
  • Has economy reached the pivot point where incoming data will be decisively less negative?
  • This is our take and disinflation tailwinds strengthening

This is the August 1982 moment, bottom is in but Fed is two months away from a pivot

As we have written about in multiple reports in recent weeks, we think this is turning out to the be August 1982 moment:

  • During Volcker’s war on inflation, equities bottomed on August 1982
  • this is two months before Volcker abandoned “anti-inflation” measures
  • More importantly, stocks recovered the entire 36 month bear market loss in 4 months
  • a mere 4 months
  • in 2022, this means stocks could see “new highs” before YE
  • yup, that is why we think S&P 500 could be >4,800 before year-end
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