Two conflicting reports haven been published recently. On one end, the American Association of Individual Investors (AAII) says that the weekly bearish sentiment of investors is reaching new highs at 48% (see chart above).
History shows us that when the risk-free asset (Treasuries, supposedly) becomes competitive with equities, stocks have to work harder to compete. This dynamic is explained by the Fed model, which compares the equity “P/E” to the bond P/E (below).
"41% of revenues in the S&P 500 come from abroad. If we have a recession in Europe and a continued slowdown in China, it will have a significant negative impact on earnings for S&P 500 companies."
For the past two years, economists and market analysts have consistently warned of an impending US recession. Yield curve inversions, aggressive Fed hikes, tightening credit conditions, and elevated recession probabilities in economic models all pointed to a looming downturn.
