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Inflation showing decisive “break” in pattern. Rally strengthening = focus on lower quality. 6 names. 2H rally intact.

The rally seen in equity markets post-CPI has been largely met with skepticism. This is essentially true of the gains seen over the past week and past month. Below is a comment from a sellside strategist and is emblematic of the pushback we get from clients (keep in mind, the sellside often mirrors what institutional investors broadly are saying).


As to why, we think much of this is explained by an anchored cognitive bias. The following contributes to investors seeing “half-empty”

  • Fed is raising rates and the binary conclusion is stocks go down
  • Inflation has been problematic for the past 16 months, and investors see it as “sticky” ala 1970s-80s, meaning it will linger for years and years
  • Stocks have been falling, so the momentum is negative
  • Stocks are rising only for “technical reasons”

On that latter point, I had lunch this week with an institutional investor who in summary said:

  • “there is no fundamental reason for stocks to be going up, especially if someone cares about earnings”
  • “the only people who are bullish are doing it for technical reasons, has anyone ever met a really rich technician?”
  • “name one fundamental investor who likes stocks here, there are none”
  • you get the picture. Deep skepticism.
But as we have discuss...

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